Economic evaluation based policy analysis for coalbed methane industry in China

Coalbed methane (CBM) is a kind of unconventional natural gas. China has abundant CBM resource and its CBM industry is expected to prosper in the future. However, China’s currently imperfect CBM industry policy still needs to be further improved to support the sustainable development of CBM industry. To provide recommendations for policy makers, economic evaluation is conducted to find out the overall economic viability of China’s CBM resource and the factors with most impact on the economic viability of CBM resource. The results show that there is still about 42% of China’s CBM resource uneconomic to develop under current industry policy and that the three factors with most impact on the economic viability of CBM resource are CBM price, production rate and operating costs. And then, policy scenario analysis is conducted to test the validity of major policies and find out the impact of different policies under different scenarios on the profitability of CBM recourse. The results demonstrate that value-added tax (VAT) reimbursement policy, financial subsidy policy and corporate income tax exemption policy are effective to improve the economic viability of CBM recourse. According to these results, some pointed recommendations on CBM industry policy are put forward.

Research highlights
► Of the total 85 target areas in China, 34 or 40% are economic, 15 or 18% are marginally economic, and 36 or 42% are uneconomic and that the three factors with most impact on the economic viability of CBM resource are CBM price, production rate and operating costs.
► The effectiveness of major tax and subsidy policies in effect is demonstrated by policy scenario analysis basing on sensitivity analysis.
► Some pointed recommendations on CBM industry policy in China based on economic evaluation results are put forward and their timeline and unintended consequences are discussed.