•A slack based data envelopment analysis is performed to measure environmental efficiency of U.S. transportation sector.•Environmental efficiency, carbon efficiency, and potential carbon reduction are estimated for states.•The analysis proves a significant reduction of carbon emission and high excess in capital expenses, labor use. Sustainable transportation in the U.S. is essential for long-term economic growth and mobility, and environmental preservation. Using a non-radial slack-based measurement data envelopment analysis (SBM-DEA) model and state-level data, this study assesses the environmental efficiency of the transportation sector in the U.S. from years 2004 to 2012. In addition to environmental efficiency, carbon efficiency and potential carbon reduction were estimated for the 50 U.S. states. The findings of this study reveal that U.S. transportation sector was environmentally inefficient; U.S. states had an average transportation environmental efficiency score below 0.64. Therefore the states could substantially reduce carbon emissions to improve the environmental efficiency of their transportation sectors.