We investigate whether and to what extent the carbon market is effective in the context of the developing world. Taking advantage of a unique five-year-plant-level panel dataset (2011-2015) on Chinese power plants, we use a matched difference-in-differences (DiD) estimation to identify the joint impact of China's carbon emissions trading (CET) pilot policy on carbon emissions reduction (objective), energy mix improvement (mechanism), and air co-pollutants reduction (co-benefits). We find that China's CET pilot policy effectively lowered carbon emissions by approximately 15.2%. Further analysis shows that plants reduce carbon emissions mainly by cutting down the coal consumption (by approximately 11.6%). Most importantly, China's CET pilot policy also induces substantial co-benefits in air co-pollutants abatement, lowering sulfur dioxide (SO2), nitrogen oxides (NOx), dust by approximately 21.2%, 30.1%, 34.2%. Plants with small scale and non-stated owned are more affected by China's CET pilot policy, and the policy effects show disproportionate environmental inequality.