Since 2012, China has implemented a series of carbon trading pilot programs across different regions. However, the impact of carbon trading policies on green innovation has not yet been fully discussed. This study utilizes nine-year panel data from 31 provinces and employs the Difference-in-Differences (DID) method to examine the differential effects of carbon trading policies on green innovation by categorizing green patents into six subsectors. The findings reveal substantial variations in policy impacts across different green innovation subsectors. Institutional factors emerge as crucial determinants in the influence mechanism. Specifically, carbon trading policies exhibit a significantly positive impact on green innovation when institutional innovation is incorporated; however, this positive effect is substantially diminished when institutional innovation factors are excluded and the focus shifts solely to pure green technology innovation.