With the Kyoto Protocol entering into effect in many countries one after another,carbon trading has come into being and developed quickly.China is the main supplier of carbon emissions rights in the world,but such transactions are still in the stage of Clean Development Mechanism (CDM) projects without its own trading system,which is not conducive for China to win the rights of carbon pricing in the international market.Low-carbon and emissions reduction is the international trend nowadays,and therefore,it is particularly necessary and urgent to investigate the issue of carbon trading in China.In this paper,the authors have reviewed Putty-Clay Vintage,which is a model of production function for carbon trading,revealing the main points,contributions and shortcomings of the model.Combined with China’s national conditions,the authors have investigated the application of this model in China’s carbon trading from four different angles,including enterprise production optimization,financial market development,national macro-economy,and the allocation of emission quota.This study aims to provide China’s enterprises with an analytical framework when participating in carbon trading in the future and it is beneficial for them to make optimal production planning when considering the cost of carbon emissions reduction. With the Kyoto Protocol entering into many in one countries one after another, carbon trading has come into being and developed quickly. China is the main supplier of carbon emissions rights in the world, but such transactions are still in the stage of Clean Development Mechanism ( CDM) projects without its own trading system, which is not conducive for China to win the rights of carbon pricing in the international market. Low-carbon and emissions reduction is the international trend nowadays, and therefore, it is particularly necessary and urgent to investigate the issue of carbon trading in China.In this paper, the authors have reviewed Putty-Clay Vintage, which is a model of production function for carbon trading, revealing the main points, contributions and shortcomings of the model. Scale with China’s national conditions, the authors have investigated the application of this model in China’s carbon trading from four different angles, including enterprise production optimization, financial m arket development, national macro-economy, and the allocation of emission quota. This study aims to provide China’s enterprises with an analytical framework when participation in carbon trading in the future and it is beneficial for them to make optimal production planning when considering the cost of carbon emissions reduction.