Using a dynamic linear unobserved effects panel data model, this study investigates how the production of thermal power affects China's carbon markets, while focusing on efficiency information about carbon price and trading volume, market activity, and market efficiency. Our results suggest that the production of thermal power has only increased the trading volume without raising the carbon prices, and that thermal power companies lose the motivation to reduce carbon emissions at low carbon price levels. Moreover, the production of thermal power has increased market activity in the carbon market, although this impact reduced after the announcement of the China National Emissions Trading System (ETS) because thermal power companies choose to trade carbon dioxide allowances, which are more flexible. Furthermore, the results indicate that market efficiency was increased in the Hubei and Shanghai pilots after the announcement of National ETS, and the impact especially significant in the first half of 2019. This implies that power companies participated actively in carbon markets in the Hubei and Shanghai pilots in the second phase of the National ETS. However, this impact disappeared in the latter half of the year because of the companies achieved their emissions reduction obligations before the end of compliance period.