<p>Carbon Emission Trading Policy (CETP) has proven effective in reducing emissions and addressing climate challenges globally. Beyond environmental benefits, CETP also holds significant potential for enhancing societal well-being, improving quality of life and fostering residents’ happiness. Employing entropy-weighted indices guided by Sustainable Development Goals (SDGs), this study analyses the impact of CETP on green welfare performance across 31 provincial panel data during 2000–2023 in China through a comprehensive evaluation framework. By adopting the difference-in-differences (DID) approach, this research assesses the effects of CETP on green welfare while conducting mechanism tests focused on scientific and technological innovation and employment structure optimization, and heterogeneity analysis is also performed to explore regional disparities. The results are as follows: (1) CETP significantly increases residents’ green welfare in pilot regions, and this is robustly confirmed through propensity score matching with difference-in-differences (PSM-DID) and placebo tests. (2) The policy enhances residents’ green welfare primarily through advancements in technological innovation and the optimization of employment structures. (3) Regional heterogeneity analysis indicates that CETP generates greater improvements in residents’ green welfare in central regions than in eastern and western regions. Based on the above results, this study proposes the orderly implementation of CETP and the promotion of technological innovations for carbon reduction and industrial upgrading. This study provides policy-makers with appropriate policy formulation recommendations to balance economic growth and green welfare.</p>