To meet the carbon reduction targets proposed in the 12th Five-Year Plan and 2020，China will establish its carbon trading market in seven provinces and cities in 2013 and all over the country by 2015． With the EU experience，to start the carbon trading market the government needs to set the total carbon emission permits． For the government to effectively allocate these permits across the enterprises participating in the emission reduction，there are several allocation formats，such as auction，unilateral and bilateral transactions．It is a natural question to explore whether the different allocation formats will allow China to minimize the emission reduction cost，given the emission reduction target． To answer this question，this paper studies the enterprises’emission reduction pathways and associated investment channels based on the production process，develops a cost minimization model of emission reduction investment and deduces its explicit solutions，and then discusses the implementation of the optimal abatement investment under several allocation formats． According to the results，some policy suggestions for implementing relevant policy measures are put forward．