Abstract This paper develops a theoretical background of the inverse DEA with pollution generating technology that is capable of dealing with undesirable outputs. Interaction between input, desirable output, undesirable output and environmental efficiency is investigated for industrial sector of Iranian provinces. Five scenarios are designed to perform this aim and construct a gradual planning scheme for short to long run CO 2 reduction. The following results are found. There exit a high potential of saving capital in short and mid and long-run from 80% to 150% in total. Province P8 and P5 are found as the most effective provinces in terms of saving inputs (labor and capital) in proposed scenarios. No labor reduction is suggested for a short run or for a long run in total, approximately 7%–160% extra labor is needed in the planning period. Some provinces face with infeasibility problem in the planning scheme especially in period on CO 2 reduction. The tightest scenario in terms of CO 2 reduction requires both extra labor and capital while reducing undesirable output and expanding desirable output.