This paper examines the impact of China's carbon trading policy on enterprises' energy-saving behavior. Using a difference-in-differences (DID) method and a comprehensive firm-level dataset, the study evaluates the effects of the carbon trading system pilot cities policy implemented in seven areas (Beijing, Tianjin, Shanghai, Chongqing, Guangdong, Hubei, and Shenzhen) from 2009 to 2015. The findings indicate that the policy significantly reduced coal consumption and coal intensity by approximately 34% and 33%, respectively. The policy's effectiveness is more pronounced for larger companies and firms in energy-intensive sectors, and it strengthens over time. The study also reveals that the policy incentivizes firms to invest more in equipment and improve management practices, leading to increased output and productivity. The results support the common trend assumption and contribute to the literature by addressing gaps related to regional and firm-level impacts, as well as the underlying mechanisms of the policy's effects.This paper examines the impact of China's carbon trading policy on enterprises' energy-saving behavior. Using a difference-in-differences (DID) method and a comprehensive firm-level dataset, the study evaluates the effects of the carbon trading system pilot cities policy implemented in seven areas (Beijing, Tianjin, Shanghai, Chongqing, Guangdong, Hubei, and Shenzhen) from 2009 to 2015. The findings indicate that the policy significantly reduced coal consumption and coal intensity by approximately 34% and 33%, respectively. The policy's effectiveness is more pronounced for larger companies and firms in energy-intensive sectors, and it strengthens over time. The study also reveals that the policy incentivizes firms to invest more in equipment and improve management practices, leading to increased output and productivity. The results support the common trend assumption and contribute to the literature by addressing gaps related to regional and firm-level impacts, as well as the underlying mechanisms of the policy's effects.