China’s Coal-to-Gas Program: A Developing Environmental Governance Regime

Despite the increasing centralization of China under Xi Jinping, SAIS student Yujin Zhang uses the example of China’s Coal-to-Gas program to show that principal-agent problems and competing interests between Beijing and local governments still negatively affect environmental policy implementation. Effective environmental policies require long-term institutional reforms, not short term campaign-style enforcement.

Yujin Zhang is a second-year International Political Economy student at Johns Hopkins University School of Advanced International Studies. His research interest is international trade and electoral behaviors. He is also pursuing a China Studies minor, a specialization in Quantitative Method and Economic Theory, and a specialization in emerging markets.


China’s Coal Problem

Xi Jinping successfully consolidated his power in the 19th Party Congress. Xi and his allies have a majority in the Politburo Standing Committee (PSC), and Xi Jinping’s Thought was introduced to the Communist Party Constitution. These events demonstrate China has entered a “tightening up” period.[1] However, the recent coal-to-gas program demonstrates that Beijing still struggles, at times, to alter the existing fragmented authoritarianism, even with Xi’s power, the greatest since Mao.[2] Policy implementation therefore continues to swing between lax implementation and over performance, with both having potential negative effects on policy outcomes.

In 2013 the State Council passed the Air Pollution Prevention and Control Action Plan (APAP). By cutting the consumption of coal and other measures, this plan aimed to reduce PM 2.5 density by 25 percent in the Beijing-Tianjin-Hebei region by the end of 2017.[3] This plan made some institutional arrangements to facilitate implementation—degree of control over air pollution became an important criterion of official promotion, and the power of the Ministry of Environmental Protection (MEP) was strengthened such that it could now supervise policy implementation and cooperate with supervisory authorities to ensure local governments reached their targets.

This plan set a clear deadline, the end of 2017, for industrial companies to complete the coal conversion program, but there was no requirement for civilian areas.[4] Though it required the expansion of combustion-forbidden zones, which prohibits the usage of heavily polluting fuels,[5] it had no word on banning coal heating in cities and suburbs. Moreover, rather than banning coal consumption APAP encouraged the construction of clean coal distribution centers in northern rural areas.

However, according to the interim report, from 2013 to 2015 only 30 percent of the target for Beijing was attained.[6] This report put heavy pressure on Hebei Province, which was believed to be a primary source of Beijing’s air pollution. Moreover, the report emphasized the control over scattered coal consumption constituting the key part of the problem because burning scattered coal generates more pollution than using standard coal.[7]

To ensure the target could be reached according to schedule, air-pollution-control measures were increased gradually. The new environmental protection law, which identified local governments’ responsibility for regional environmental quality, was passed in 2015. The MEP also launched a series of central environmental inspections in 2015 and held over 6,500 officials accountable for poor environmental protection work in 2016.[8] In June 2016, the MEP, Beijing, Tianjin, and Hebei governments jointly issued a document to intensify air pollution control measures, which required local governments to start deploying the coal-to-gas program in civilian areas.[9] The MEP would quarterly check the air-pollution-control progress.

At the beginning of 2017, the Hebei government started converting large numbers of coal-fired heaters to natural gas or electricity and planned to convert 1.8 million families’ homes.[10] However, this coal conversion caused massive dissatisfaction among Hebei citizens and prompted outcry online because of unwise planning and botched implementation. China is not a gas-rich country, and 27 percent of scattered coal is used for heating by individuals.[11] Consequently, State-owned Enterprises find themselves unable to cover the jumping demand. For example, in November 2017, the volume of imported natural gas had increased by 53 percent year-over-year. The price for liquefied natural gas also increased from 4,000 to over 10,000 RMB per ton.[12] To deal with the shortage of natural gas, some cities limited the amount made available for purchase. The gas supply for some industries was also suspended to secure the supply for civilian usage.[13]

In some places, however, authorities banned burning coal before completing the construction of gas pipelines. That is to say, there was no any legal alternative heating system for the people in these areas. For instance, in Quyang county, some primary school students had to rely on running for heating and study in the sunshine to keep warm.[14] The coal-to-gas program was finally suspended by the MEP that people could maintain their original heating methods, which was burning coal, if the infrastructure construction had not been completed.[15]


The Principal-Agent Problem: Underperformance and Overperformance

The coal-to-gas program reflects the principal-agent dilemma in China’s environmental governance. The center (principal, in this case the central government of China) must rely on local governments (agent, the local governments) to implement its policies. However, the agent usually deviates from principal’s targets due to the conflict of interests and weak supervision. In this case, at the beginning of implementation, local officials were reluctant to push progress with the concern that environmental protection might block local economic development. Moreover, local governments have to contribute to the funding for this program, including equipment purchase, installation, and gas subsidies.[16]

However, with the upgrade of supervision, the implementation moved from lax performance to over-performance that compromised other governance targets. To control air pollution and complete refitting in a short period, local officials were unable to address problems case by case and had to sacrifice other secondary or long-term targets, such as industrial production and heating supply, in favor of reducing PM 2.5 amounts. Consequently, one-size-fits-all solutions weakened the center’s efforts of restoring legitimacy via controlling air pollution. The center recognized the deviation from planned targets in real implementation, e.g. the National Development and Reform Commission has criticized “One-Size-Fits-All” measures in the process of coal-to-gas conversion, for instance.[17]

Besides the tradeoff between different policy targets, one can also observe the prevalence of overextension in policy implementation. For example, the process of eviction was not always peaceful, but relied upon coercive methods such as cutting utility supply. Moreover, at the beginning of 2017, the Hebei government aimed to complete the coal-to-gas conversion for 1.8 million families, but the final number was 2.54 million. The overperformance did not only exist in the civil field but also in industrial sectors. For instance, 36,207 coal-fired boilers were banned, which is 114.4 percent of the target. If the program had been implemented as the plan, though there might still be gas shortage, the situation would not have been that serious. The over-performance mostly served to exacerbate the existing gas shortage rather than benefit the people.

However, in the original principal-agent model, the agent can act in either way: evasion or overperformance, but in this case, why did the agents choose the latter? Why were local officials willing to spend so much energy and resources in doing so? I think it is associated, at least to some degree, with the increasing power consolidation of the center. If the local capacity is constant, the unrealistic targets, the overstatement of task completion, and the possible punishments associated with failure will distort implementation. These factors send the wrong signals to local officials and make them ignore other competing targets, such as heating supply. China has seen similar but more extreme instances of the pattern since the inception of the PRC.

The Great Leap Forward started in 1958, which wanted to rapidly boot the economy and capture the US and the UK in a short period. One vital indicator was steel production. China produced 5.3 million tons of steel in 1957 and planned to produce 6.2 million tons in 1958. However, to “surpass Great Britain and catch up with the US” (“Gan Ying Chao Mei”) in a shorter time, the target was increased from 6.2 million in February, to 8–8.5 million in May, and finally to 10.7 million in July.[18] The target was finally completed but by melting down tools and making steel in backyard furnaces around the country. Nevertheless, one third of the final production was useless due to poor smelting.[19]

In conclusion, it is rash to predict that the increasing centralization will necessarily improve China’s environmental governance. The underlying conflict of interests between Beijing and local governments and limited local capacities tend to distort policy implementation. The campaign-style enforcement, which requests completing tasks in very short periods, only serves to intensify such conflicts. More patience and long-term institutional arrangements to conduct reforms will be needed to address this issue going forward.




[1] Kostka, Genia and Jonas Nahm. “Central–Local Relations: Recentralization and Environmental Governance in China.” The China Quarterly, no. 231 (2017): 567-582.

[2] Lampton, David. “Following the Leader: Ruling China, from Deng Xiaoping to Xi Jinping.” University of California Press. 2014.

[3] PM 2.5 refers to the particulate matter, whose diameter is lower than 2.5 μm. PM 2.5 is inhalable and can damage health.

[4] Gradually replacing coal with electricity and natural gas. See Ministry of Environmental Protection. “国务院大气污染防治十条措施.” Mep. July 09, 2013.

[5] According to the Catalogue of High-Pollution Fuels, passed in August 2015, only large cities, such as Beijing, can choose to ban burning all kinds of coal in urban combustion forbidden zones. See Ministry of Environmental Protection. “环境保护部印发《高污染燃料目录》.” MEP. April 02, 2017.

[6] Meng, Zhu and Xing Gao. “大气十条”中期报告:北京PM2.5下降不足1/3.” People. July 06, 2016.

[7] Scattered coal is the coal does not experience the procedure of desulfurization and denitration.

[8] Meng, Jie. “China to Launch New Round of Environmental Inspections.” Xinhuanet. August 07, 2017.

[9] The Stronger Measures on the Prevention and Control of Air Pollution in the Beijing-Tianjin-Hebei Region (2016-2017).

[10] Wu, Xiao. “河北承认煤改气搞得 ‘太多了’ 今冬天然气需求为去年同期234%.” Caixin, December 12, 2017.

[11] Kou, Jingze. “治理散煤污染,思路要广一点.” Xihuanet, December 09, 2017.

[12] Dong, Ruiqiang. “液化天然气价格暴涨的背后.” eeo. December 26, 2017.

[13] Chen, Jingchun. “相信民用天然气供应可以得到保障——能源专家解读近期‘气荒’现象.” December 16, 2017. Xinhuanet.

Gdcopper. “ ‘煤改气’导致部分铜杆企业出现停产现象.” December 25, 2017. Gdcopper

Zhao, Liyun. “天然气短缺波及下游云天化尿素产能停产.” December 13, 2017. Stcn.

[14] Xinhuanet. “河北曲阳多所乡村小学至今未供暖 学生跑步取暖.” Xinhuanet. December 05, 2017.

[15] Zhang, Yu. “暂停 ‘煤改气’ 的背后:天然气价创新高 气荒来袭.” Sina. December 09, 2017.

[16] “十八省煤改气煤改电政策汇总.” Chinagas.

[17] Xinhuanet. “国家发改委:居民采暖不得采取“一刀切”限煤措施.” Xinhuanet. December 26, 2017.

[18] “Catching up: China’s economy is overtaking Britain’s.” The economist. December 20, 2005.

[19] Luo, Hanping. “一九五八全民大炼钢.” dangshi.people. July 31, 2014.


Yujin Zhang
Yujin Zhang

Yujin Zhang is a second-year International Political Economy student at Johns Hopkins University School of Advanced International Studies. His research interest is international trade and electoral behaviors. He is also pursuing a China Studies minor, a specialization in Quantitative Method and Economic Theory, and a specialization in emerging markets.