With the escalating threat of climate change, improving environmental performance across industries has become crucial. This study explores the use of Data Envelopment Analysis to measure environmental efficiency, addressing a gap in past research that overlooked the structural factors of production systems. Many studies treated production units as “black boxes,” failing to identify inefficiencies accurately. To overcome this, the study incorporates emissions alongside traditional input and output parameters at each production stage to derive the overall system’s environmental efficiency while decoupling stage-level efficiencies. The environmental efficiency scores are then compared with technical efficiency using separate models. The framework’s applicability is demonstrated through a case study of 130 European Union farms, where 21% and 8% were efficient in technical and environmental aspects, respectively. For crop production, environmental efficiency improves significantly compared to technical efficiency, while animal husbandry shows a decline in environmental performance. The findings suggest that inefficient farms can enhance environmental performance by achieving technical competence. The study concludes that full efficiency across all stages is necessary for overall environmental efficiency. The values of marginal rate of substitution for inputs and the marginal rate of transformation for outputs hold great practical implications for policy-makers. Medium to small sized farms is environmentally more efficient. Meat and milk productions are resource intensive and attempts should be made to convert more forage land into arable land which will improve the environmental performance of agriculture.