The Beijing government recently announced a 1 trillion yuan ($163 billion) plan to clean up its deadly and expensive air pollution problem. Its success hinges mainly on sharp cuts in regional coal consumption.

But China still has to keep the lights on somehow. Its solution? Synthetic natural gas (SNG) converted from coal. Beijing will be one of the first cities powered by SNG. That’s great for the capital. But as we explored last month, SNG creates toxic fumes and 82% more greenhouse emissions than coal-burning.

Scrubbing can mitigate that to some extent. What technology won’t fix, though, is the massive volumes of water needed to make SNG. That threatens to devastate these already water-starved Xinjiang and Inner Mongolia autonomous regions, where all but two of the 18 big SNG plants approved so far are being built, reports World Resources Institute, a non-profit group.

WRI’s Tien Shiao says farmers, herders and households will likely bear the brunt of this strain on water resources. To produce the 4 billion cubic meters of SNG fuel that Beijing will need each year requires the same amount of water that 1 million Inner Mongolians consume for personal use.

It’s not like China has no alternatives. As we flagged earlier, China has the world’s biggest potentially recovered reserves of shale gas, which require much less water than SNG:

World Resources Institute This graph illustrates water consumption for fuel extraction and processing of selected fossil fuels. Each dot represents the average water consumption by fuel type, and the bar indicates the range of water volumes consumed by different production processes within each fuel type. (Note: The production of shale gas requires a significant amount of water withdrawal, however, consumptive use is relatively low. Most of water used in the hydraulic fracturing process returns to the environment or is reused in the system.)

But the government is stymying shale’s development, setting prices too high and incentivizing extraction at the expense of exploration, reports Caixin. China also allows only state-owned companies to bid for shale acreage (pdf, p.5), even though smaller companies in other markets have pioneered shale technology since they tend to innovate faster.

This isn’t totally shocking. China’s the planet’s biggest coal producer. The fact that mostly coal and power companies—as opposed to gas producers—are behind SNG plants suggests that one government priority is propping up the coal business. SNG also minimizes China’s reliance on imported natural gas. And building shale wells requires expensive foreign technology.

SNG, in other words, is a big win for a lot of people. State-owned and -affiliated companies get more business. The government can boast its homegrown innovation and claim energy independence. The losers will be residents and farmers in Xinjiang and Inner Mongolia. But apparently that’s a cost the Chinese government is willing to swallow.