In this paper, through the analysis of the great challenges faced by China's energy industry in the development of low carbon economy, it is advisable that China increase the proportion of natural gas (NG) in primary energy as the main strategy of energy conservation and CO2 reduction in the advancement of industrialization and urbanization. In the near future, NG will become one of the major energy suppliers for new towns and industrial parks, and work for electric peak shaving when used in distributed energy system/combined cold, heat and power (DES/CCHP). However, as an efficient approach to improve the energy utilization efficiency, DES/CCHP cannot only increase the current energy efficiency from 33% to 50.3% (the world's average), but also reduce the cost of terminal supplies of power, cold, steam and hot water. It will become one of the most important means to control CO2 emissions in the next 20 years, and is essential to China's low carbon industrialization and urbanization. (C) 2012 Elsevier Ltd. All rights reserved.