Burning high-sulphur coal and wet wood will be banned in Gore and Invercargill homes from January 1.
Multifuel burners and open fires in homes are also being phased out in the town and city.
The bans come as Environment Southland introduces new rules to improve air quality and meet national environmental standards.
Rules banning coal and non-approved burners for home heating came to Alexandra, Clyde, Cromwell and Arrowtown in January 2012.
Last month the Otago Regional Council released information that showed the four towns recorded high pollution days between 20 and 51 times this winter - more than either Gore (one high pollution day) or Invercargill (13).
The supplier of Kaitangata coal said the move in Southland would punish lower-income households and might not address the root cause of air pollution.
''Coal has had this cloud over it for many years,'' Kai Point Coal general manager Chris O'Leary said.
More people were opting for heat pumps these days but coal provided the cheapest form of energy - about 2c a kilowatt hour for heating, he said.
''It takes out the alternatives for these people who are in fuel poverty.''
He also questioned whether transport, or other factors, burning rubbish or wood that has been drying for less than nine months, played a larger role in the South's air quality than Environment Southland assumed.
''I think people are sort of barking up the wrong tree, but nobody's ever taken them to task.''
The Regional Air Quality Plan for Southland was notified on September 6.
Environment Southland's website says the fine particulate matter (PM10) that must be reduced to meet government standards is largely caused by smoke from chimneys.
''An emission inventory undertaken in 2011 found that home fires/burners accounted for 92% of PM10 emissions in Invercargill, and 96% in Gore.''
Environment Southland policy planning and regulatory services director Vin Smith said he was aware many people would find it expensive to replace an open fire with a heat pump or an approved burner, and that landlords would have to replace heating systems for tenants.
''We recognise replacing open fires is a difficult and challenging task, but it is a task we must undertake to meet national standards.
''We are trying to find a balance between the requirement for [better] home heating and people's need to stay warm at an affordable cost.''
Mr O'Leary said although the Kaitangata company did 80% of its business in the unaffected industrial sector, the new rules would affect business at Kai Point Coal and businesses reselling coal.
''I don't know how they're going to heat all these homes in the coldest part of the country when they haven't got a reliable source of quite economical heat.''
Mr O'Leary said coal sales to Southland peaked in 2010 but domestic sales fall about 10% a year as old folk using coal die.
Kai Point Coal supplies 5000 to 6000 tonnes of coal to Southland's domestic market. Average customers used about 3 tonnes a year.
After consultation, the date for the prohibition of high-sulphur coal was pushed back to January 1, to allow households to use up their supplies.
Even though some of the new rules have been put in place immediately, Environment Southland is calling for submissions on the changes.
Submissions close on November 3.
Mr Smith said all submissions would be considered and it was possible the plan would be amended as a result.
• For more information go to BreatheEasySouthland.co.nz.
