Market incentive environmental regulation will have a certain impact on economic development while carrying out environmental protection. Therefore, based on the carbon trading pilot policy, this paper discusses the impact of market incentive environmental regulation on total factor productivity. Based on the data of Shanghai and Shenzhen A-share listed companies from 2010 to 2022, the empirical analysis is conducted by constructing a DID model. The results show that: (1) carbon trading pilot policy has a significant positive effect on total factor productivity; (2) The heterogeneity test shows that the positive effect is more obvious in regions with partial compensation and lower carbon trading price, in addition, compared with the eastern region, the central and western regions have a more significant positive effect on the total factor productivity of enterprises under the background of carbon trading policy; (3) Through the analysis of the intermediary effect model, the carbon trading pilot policy meets the setting of Porter’s hypothesis, and can stimulate the R&D and innovation of enterprises, thus improving the total factor productivity of enterprises by reducing their tax pressure or easing the financing, constraints of enterprises. Based on the above conclusions, the development of enterprises can be maintained by strengthening the transformation and upgrading equipment, increasing the paid carbon quota, maintaining the carbon trading price, or increasing the R&D and innovation activities of enterprises.