Designing an optimized carbon pricing framework: Integrating supply, demand, and governance for effective carbon market

Amid challenges to the low-carbon transition of energy-intensive industries, establishing a robust carbon pricing system is crucial for guiding corporate adaptation. This study proposes a systematic framework to optimize carbon pricing strategies for effective carbon market design. The framework analyzes carbon price dynamics through the dual lenses of supply and demand. Supply-side analysis examines core mechanisms: cap setting, allowance allocation, and market adjustments. Demand-side analysis incorporates firm-level factors, abatement costs, and linkages with energy markets. The paper clarifies the transmission mechanisms and drivers of distortion between theoretical and observed carbon prices, arising from government interventions and corporate responses. To address these gaps, three optimization pathways are proposed: advancing quantitative research on regulatory efficacy and dynamic allocation; developing integrated models to analyze interactions and spillovers between domestic and international carbon markets; and establishing a comprehensive framework to evaluate carbon pricing effectiveness through policy coverage, technology diffusion, and corporate feedback, thereby strengthening incentives for emission reductions. • Propose a novel framework for carbon pricing based on the supply and demand model. • Find that theoretical carbon price is distorted by government intervention and enterprises. • Optimize carbon price from supply, demand, marginal utility, and intervention perspectives.