Improving Air Quality in Chinese Cities by Substituting Natural Gas for Coal: Barriers and Incentive Policies

As a result of its rapid economic development and large volume of coal burning, China is faced with serious coal-smoke pollution in urban areas. In large cities such as Beijing and Chongqing, people are clearly suffering the adverse health effects of coal-smoke pollution, with PM-10 and SO2 as the main pollutants. Natural gas, although not the dominant energy source in China, is becoming one of the most attractive clean substitutes for coal. On one hand, there is widespread disagreement and doubt about the rationale for burning natural gas instead of using it as a raw material in the chemical industry. On the other hand, the economic advantages of natural gas over clean-coal technology are crucial in deciding whether to promote the use of natural gas as a fuel. This research has four goals: Firstly, it quantifies the health damage caused by air pollution, particularly coal burining, in Beijing and Chongqing. Secondly, it explores the rationale behind using natural gas for municipal (residential and commercial) energy production through two comparison studies: (a) using natural gas as clean fuel versus using it as a chemical industry raw material, and (b) using natural gas versus clean coal technology. Thirdly, it performs a cost-benefit analysis of urban natural gas substitution projects in Beijing and Chongqing. The evidence indicates that in cities with the most concentrated population and economic activity, natural gas as the municipal energy source has clear environmental benefits in reducing the concentration of non-point and low-level air pollution.