Connected and automated vehicles (CAVs) are poised to reshape transportation and mobility by replacing humans as the driver and service provider. While the primary stated motivation for vehicle automation is to improve safety and convenience of road mobility, this transformation also provides a valuable opportunity to improve vehicle energy efficiency and reduce emissions in the transportation sector. Progress in vehicle efficiency and functionality, however, does not necessarily translate to net positive environmental outcomes. Here we examine the interactions between CAV technology and the environment at four levels of increasing complexity: vehicle, transportation system, urban system, and society. We find that environmental impacts come from CAV-facilitated transformations at all four levels, rather than from CAV technology directly. We anticipate net positive environmental impacts at the vehicle, transportation system, and urban system levels, but expect greater vehicle utilization and shifts in travel patterns at the society level to offset some of these benefits. Focusing on the vehicle-level improvements associated with CAV technology is likely to yield excessively optimistic estimates of environmental benefits. Future research and policy efforts should strive to clarify the extent and possible synergetic effects from a systems level in order to envisage and address concerns regarding the short- and long-term sustainable adoption of CAV technology.