While industries worldwide are striving to meet the 1.5-degree target outlined in the Paris Agreement. As the most significant source of carbon emissions, the transport sector has not reduced its emissions enough. Based on panel data from 2007 to 2022 in China, this study using time-varying difference-in-differences (DID) method to investigates the causal effect of carbon emission trading scheme (ETS) on green total factor productivity (GTFP) within transport industry. Our empirical findings suggest the following: Firstly, the implementation of the ETS policy has significantly improved the GTFP of the transport sector in the pilot areas. Secondly, the decomposition results of GTFP indicators show that the ETS primarily increased green scale efficiency and stimulates green innovation. Technological progress and scale efficiency (i.e. optimal allocation of resources) are the main influencing mechanisms. Thirdly, heterogeneity analysis results show that the ETS has a stronger positive impact on GTFP of transport sector in the eastern region, while its impact on central and western regions is not significant. After a series of robustness tests, the above conclusions still remain valid. Overall, this paper provides empirical evidence for the emission reduction effect of ETS and offers valuable policy implications for the green transition of the transport sector.