Carbon emission trading emerges as a pivotal instrument in propelling China’s commitment to green development. With the nation’s carbon market in its formative years and its mechanisms yet to fully mature, unraveling its influence on green innovation efficiency becomes increasingly vital. This study utilizes the SBM-DEA model to evaluate green innovation efficiency across 30 provinces from 2005 to 2020, uncovering the following notable findings: (1) Carbon emission trading schemes significantly enhance green innovation efficiency in China, a finding that remains robust under various checks. (2) In the context of China’s emerging carbon market, government intervention, rather than market mechanisms, plays the most crucial role in enhancing green innovation efficiency. (3) A threshold regression analysis discloses a dual-threshold effect of government intervention on the relationship between market mechanisms and green innovation efficiency. (4) The impact of policies varies across different geographical areas, cost pass-through capabilities, and levels of energy consumption. These findings provide new insights into refining strategies for carbon market development and improving green innovation efficiency, offering a fresh perspective on navigating the complexities of environmental policy and economic growth.