This study’s aim is to examine the environmental performance of the South Korean manufacturing industry and suggest performance-oriented policies. The manufacturing industry is classified into seven sub-sectors based on individual sectoral differences among firms. For this purpose, a sequential generalized directional distance function and the Sequential Malmquist-Luenburger (SML) index are used with the assumption of no deterioration in technology over time. The SML is decomposed into two indices: efficiency change (EC) and technical change (TC). The empirical results showed an average increase of 0.3% in environmental productivity measured by the SML over the whole period. Although the overall average value is low, it showed a 0.8% increase after 2015, implying that ETS policy has enhanced environmental productivity. From the decomposition of the SML, it was also found that the EC index (−1.1%) was comparatively lower than the TC index (1.5%) over seven years, implying that the innovation effect leads the environmental productivity of the Korean manufacturing industry. With regard to individual sectors, the seven sub-sectors showed quite different patterns in their performance. Therefore, not only should firms in each sector make an effort to enhance their performance, but the government also needs to support specialized measures to enhance firms’ overall competitiveness.
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