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Although widely regarded as a catalyst for cleaner production, the impact of carbon trading on the construction sector, particularly under regional heterogeneity, remains insufficiently examined. This study examines the effect of carbon trading policies on Green Total Factor Productivity (GTFP) in China’s construction industry, with a focus on the mediating role of Green Technology Innovation (GTI) and regional heterogeneity. Using provincial panel data from 2004 to 2020, we apply static and dynamic Difference-in-Differences models and construct a Super-SBM GML index to measure GTFP. The results show that carbon trading significantly enhances GTFP, mainly through promoting Green Technological Change (GTC), with stronger effects observed in eastern and central regions and in provinces with higher overcapacity. Mediation analysis confirms that GTI partially explains the policy’s effect on GTFP. We also identify an inverted U-shaped relationship between GTI and GTFP, indicating that while GTI generally improves GTFP, its marginal returns may decline beyond a certain threshold. Most provinces remain below this point, suggesting continued room for positive gains through green innovation. The study provides empirical evidence from panel estimation and mechanism testing, and theoretical support grounded in the Porter Hypothesis and innovation-driven regulation theory, offering insights into how carbon trading can advance green productivity in high-emission sectors and inform low-carbon transition strategies in developing economies.
Su et al. (Tue,) studied this question.