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Abstract

This paper estimates the shadow price of CO2 from burning maize straw in the Chinese agricultural sector and explores the policy implications for decision makers. Using a parametric quadratic directional distance function, we evaluate the production inefficiency and shadow prices of CO2 reduction for 7 major maize provinces in China from 1996-2014. The efficiency improves over time. In 2014, Shandong province ranks the top with full efficiency considering both economic and environmental impacts. 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 price of CO2 from burning crop residue is estimated to range from 0-0.913 yuan/ha (or US$152/t) with an average of 0.45yuan/kg (or US$75/t). The downward slope of marginal abatement cost implies a rational of abating CO2 from the most polluted area. The abatement costs analysis imply that the whole society will benefit if the transaction cost of promoting adoption of conservation practices is less than 385 yuan/ha. This government offset would compensate farmers for yield reductions in favor of implementing conservation practices that would substantially reduce CO2 emissions.

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