Smart carbon markets design in china: enhancing data transparency and driving digital innovation under the dual carbon goals

China's national carbon market has become a key tool for the government to achieve the significant emission cuts needed for the 2060 carbon neutrality target. However, a review of its design and operation from 2010 to 2024 shows that the system still does not work as a strong, market-based climate policy. This paper argues that three interconnected risks mutually reinforce each other. First, informational risks stem from inconsistent and sometimes unreliable measurement, reporting, and verification (MRV) systems, which distort emissions data and create opportunities for strategic misreporting. Second, regulatory risks arise from fragmented rules, relatively low penalties, and weak enforcement, keeping the expected cost of non-compliance low. Third, market risks result from persistent allowance oversupply, which depresses prices and weakens the marginal abatement cost (MAC) signal that should guide low-carbon investment. The primary contribution of this study is to propose a dual-pillar mitigation framework for transforming China's national carbon market from a primarily administrative compliance tool into a more effective economic instrument. The first pillar involves leveraging technology to automate data collection and verification, including blockchain for securing transactions and allowance records, the Internet of Things (IoT) systems for continuous emissions monitoring and near real-time data, and artificial intelligence (AI) for anomaly detection and optimizing the Market stability reserve (MSR). The second pillar centers on governance reforms, including strengthening the market's legal foundation by replacing temporary administrative measures with binding national regulations, transitioning to full allowance auctioning, and instituting penalties that consistently outweigh the economic benefits of non-compliance.