The Ministry of Enviroment says over 1.3 million "yellow label cars" were registered at the end of 2013, 10 percent of all vehicles, but over half of vehicle pollutants are attributed to them.

China plans offer financial incentives to those coal-fired power plants that are least polluting over the next two years.

From Jan. 1, coal-fired generators that emit pollutants below the maximum permitted levels of natural gas-fired generators will receive government money per kilowatt-hour of electricity produced, the National Development and Reform Commission, the country's top economic planner, said in a statement. Local environmental protection authorities will be responsible for monitoring emission levels.

Coal-fired generators installed before 2016 will receive 0.01 yuan for per kilowatt-hour of electricity they generate, while those installed in after 2016 will get half that amount.

The announcement comes as severe smog persists in parts of north China, bringing traffic restrictions, closure of construction sites and suspension of schools. Coal contributes most of the pollutants.

On Dec. 2, the State Council, China's cabinet, decided to upgrade coal-burning power plants nationwide to reduce pollutants by 60 percent in the next five years.