Market-based environmental policies, such as emission trading schemes (ETS), are often regarded as cost-effective tools for promoting clean industrial transitions. However, various market and non-market constraints can hinder their effectiveness in developing countries. This chapter examines the impact of pollution reduction on China’s ETS by comparing two pilot programs in Shanghai and Tianjin, which differ in policy features and regulatory approaches. A qualitative comparison reveals that the Tianjin ETS is less stringent than the Shanghai’s, leading to significantly lower trading activity. To empirically quantify the emission-reduction effect of the ETS, we conduct regression analyses to assess how firms’ sulfur dioxide (SO2) emissions respond to changes in permit prices. The results indicate that firms’ SO2 emissions under Shanghai’s ETS exhibit a negative relationship with carbon permit prices, whereas Tianjin’s firms show no significant response. Further analysis indicates that reductions are concentrated in the ferrous metal sector. These findings highlight the importance of policy design, regulatory context, and industry-specific characteristics in determining the success of environmental policies in reducing emissions.