Abstract In this study, we investigated whether wood pellets were more sustainable than coal for heating buildings in China by presenting a “fuel-to-heat” energy, environmental and economic comparison for both energy sources. Pellet and coal heating systems were modeled using a process-based life cycle inventory modeling approach, and the energy consumption and air pollutant emissions were calculated in Gigajoules (GJ). Wood pellets were also analyzed for their costs and market competitiveness against coal and other fossil fuel heating alternatives. The results showed that the energy saving potential from using pellets instead of coal was 1382 MJ for every 1-GJ of heat generated. Greenhouse gas emissions from pellets were 11.76 kg CO 2 -eq GJ −1 heat, which were approximately 94% less than emissions from coal heating systems. Also, the wood pellet systems reduced SO 2 , NO x and PM emissions by 86%, 56% and 33%. However, the cost of pellets is significantly higher than the cost for coal, and is the primary impediment for the transition from coal to pellets in China. In addition, multiple consumers of wood residue, unstable heat values of pellet, limited supplies, and the lack of product and heating equipment standards also render the transition from coal to pellets impractical.