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The overuse of N fertilizer by rice growers triggers excessive greenhouse gas (GHG) emission, leading to the environmental and climatic problem. However, growers will probably suffer loss in profits if they reduce the use of N fertilizer under the existing technology condition. The payment in market-based or government-driven way may overcome the potential barrier. For the appropriate carbon trading market is absent, the government-driven program will play a role in the payment. Three key issues in the designed program are the price of the payment, the participation rate of rice growers, and the variation of items associated with the social welfare. Due to the difficulty in estimating the economic value, prices of the payment can be set according to shadow prices. This paper applies the parametric directional output distance function to derive shadow prices of CO2 for 308 rice growers in Shanghai from 2008–2015. Average shadow prices range from RMB 1130 to 3769 yuan/ton (or US 163 to 618 $/ton). Taking the year of 2015 as sample, this paper predicts the participation rate (97.08%) of rice growers with the aim of 10% N fertilizer reduction and the specific price of the payment (7.47 yuan/kg). Moreover, this paper discusses on the variation of factors linked with the social welfare, and derive two important relationships from it. In detail, the relationship between the yield of the rice and the reduction of the N fertilizer should be balanced; the relationship between the improvement on the profit of rice growers (or the participation rate) in the program and the payment by the government should also be balanced.

Payment for Rice Growers to Reduce Using N Fertilizer in the GHG Mitigation Program Driven by the Government: Evidence from Shanghai