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The emissions trading scheme (ETS) is a key policy tool for reducing carbon emissions and combating climate change but may cause unintended social-economic consequences. Clarifying the role of city heterogeneity can contribute to improving ETS policy and informing green development roadmaps. Using panel data of 274 Chinese prefecture-level cities, the heterogeneous impacts of ETS on city green development efficiency (CGDE) were assessed by the difference in difference in difference (DDD) method. The results show that: the ETS significantly advances China's CGDE, mainly through inducing cities' green innovation. More insightfully, the ETS policy has more significant positive effects on the cities in the eastern region, high economic development, resource abundance, and good environmental governance than otherwise. The study suggests that designing the ETS should incorporate the cities' heterogeneous characteristics to accelerate green development through green innovation and cover more regions and industries.