The 63-page report identified government price distortions and weak oversight as the key problems arising from China's dependency on cheap coal.
It also takes into account the distortion of government regulations which keep coal prices down such as land ownership policies, and inadequate worker safety and worker compensation systems.
"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.
"Recognising the true cost of coal would create incentives to developing cleaner, sustainable energy sources"
Yang Ailun, Greenpeace campaign manager
The report said China could wean itself off its coal dependency and better address ecological degradation and global warming concerns by accounting for the hidden annual costs.
"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.
It added that a fair price for coal will ensure more efficient use and increase the competitiveness of Chinese companies while spurring development in renewable energy sources.
At the same time the 23 per cent price increase recommended in the report will cause only a 7 per cent drop in consumption, meaning that coal will not lose its dominance in China for decades.
|Chinese miners pay a heavy human price for the reliance on coal [EPA]
Yang Ailun, climate and energy campaign manager at Greenpeace, said China faced a growing urgency to clean up it environmental act.
"Recognising the true cost of coal would create incentives to developing cleaner, sustainable energy sources," she said.
"The government should introduce an effective price signal for coal, which would ensure a massive improvement in energy efficiency."
The report added that Chinese miners were already paying a heavy price for the use of coal, with fires, floods and other disasters in China's mines killing an average of 13 miners a day.
Many of the accidents in China occur in small mines with low safety standards or in mines operated illegally.
China now ranks alongside the United States as one of the world's two biggest emitters of the gases that are blamed for climate change.