A report entitled: "The True Cost of Coal", jointly commissioned by Greenpeace, the Energy Foundation and conservation group WWF, said taking into account the real expense was vital to the nation's future energy security.
The unaccounted costs equate to an estimated 1.7 trillion yuan (US$249 billion), and would be even higher if the impacts of climate change were included, according to the report.
"Environmental and social damages are underestimated while using coal in China as a result of market failures and weakness in government regulations", said Mao Yushi, an economist and lead author of the report.
By accounting for the hidden annual costs, China could wean itself off its coal dependency and better address ecological degradation and global warming concerns, the report said. "The government of China has the opportunity to make a real improvement to the environment by reforming the current coal pricing system," the report said. "If all the external costs of coal are genuinely reflected in the coal price, this will provide a non-distorted price signal for the whole energy market."
The report said the external and unaccounted costs to China of using coal included air and water pollution, ecosystem degradation, damage to infrastructure, human injuries and loss of life.
It also takes into account the distortion of government regulations which keep the cost of coal down such as distorted land ownership policies, and inadequate worker safety and worker compensation systems.
China depends on coal for about 70% of its booming energy needs, which is one factor in its huge increase in greenhouse gas output in recent years. China now ranks alongside the U.S. as one of the world's two biggest emitters of the gases that are blamed for climate change.