CHINA has set a new pricing mechanism for coal gases and formulated licensing rules for coal mines to improve work safety and encourage more efficient fuel use, Bloomberg News reported.

Prices of coalbed methane will be determined by producers and their customers, the National Development and Reform Commission, the country's top economic planner, said yesterday.

Firms directly involved in coalbed methane extraction and production can apply to be exempted from paying certain mining licensing and extraction fees until 2020, it said.

China has one of the worst mine-safety records because old and unsafe pits have been kept open to meet rising demand for coal, iron ore and other raw materials. The government, under pressure to improve safety records, is cracking down on poorly managed and privately run pits.

"Coalbed methane is a form of clean energy for generating power, as city gas, as car fuel and in the making of chemicals," the commission said in its statement. "It's a precious resource."

China has extractable reserves of 10 trillion cubic meters of coalbed methane, the commission said. Companies applying for new coal mine licenses will have to submit reserves and pricing assessments of coalbed methane and coal, it said.

China, the world's biggest energy user after the US, wants to boost the share of its energy produced from natural gas to 8 percent by 2010 to cut pollution and reduce the country's reliance on coal and crude oil.