Renewable energy technological innovation (RETI) is an important way to reduce carbon emissions and achieve sustainable development. Exploring whether RETI is beneficial to the improvement of carbon emission efficiency and how the market environment affects the role of RETI on carbon emission efficiency is critical to the design of effective policies. Therefore, based on the data from 25 provinces in China from 2002 to 2015, the Tobit fixed-effect model and the panel threshold model are used to investigate the impact and the mechanism of RETI on total factor carbon performance index (TCPI) from a market perspective. The results show that: (1) RETI can effectively improve TCPI, but this effect is affected by market factors; (2) With the reduction of market segmentation or the increase of market potential, the improvement effect of RETI on TCPI is significantly enhanced; (3) The panel threshold model further verifies that the impact of RETI on TCPI has a significant single threshold effect in terms of market segmentation and market potential; (4) There is an inverted “U-shaped” relationship between market segmentation and TCPI, and the increase of market potential is conducive to the improvement of TCPI. This paper provides corresponding policy implications for China to achieve the dual goals of economic transformation and carbon emission reduction. Display omitted •Confirm the effect of renewable energy technological innovation (RETI) on TCPI•Use panel threshold model and take market factors as threshold variables•Single threshold effect exists between RETI and TCPI (Carbon Emission Efficiency).•Market segmentation weakens the promotion effect of RETI on TCPI.•Market potential enhances the promotion effect of RETI on TCPI.