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. (C) 2010 Elsevier Ltd. All rights reserved.