This paper estimates the shadow price of CO2 from burning crop residue in the Chinese agricultural sector and explores the policy implications for decision makers. Using a parametric translog directional distance function, we evaluate the technical efficiency and shadow prices of CO2 reduction for 7 major maize provinces in China from 1996-2013. Our results show that crop yield, cost of total inputs, and percentage of burnt crop residue account for 30%, 10% and 20% of the inefficiency, respectively. The shadow price of CO2 from burning crop residue is estimated to range from 0-1.368 yuan/ha (or US$210.5/t) with an average of 0.496yuan/kg (or US$76/t). Further analysis indicates that the average efficiency will increase by 9% if conservation practices are adopted by assuming 10% decrease in yield and 50% decrease in burnt crop residue under conservation practices compared to conventional practices. The shadow prices in these two cases imply that the whole society will benefit if the government spends less than 201 yuan/ha to promote adoption of conservation practices. This government offset would compensate farmers for yield reductions in favor of implementing conservation practices that would substantially reduce CO2 emissions.