Abstract: It is of great significance to study the transformation of production-living-ecological space and the evolution mechanism of carbon balance and design a carbon compensation scheme scientifically to rectify the mismatch of production-living-ecological space and the imbalance of carbon budget. Based on the perspective of the transformation of production-living-ecological space, this paper analyzed the evolution mechanism of the carbon budget and the theory of carbon compensation. An empirical analysis was conducted on the example of the Southwest China. The amount of carbon compensation was measured, and the carbon compensation and the uncertainty were discussed. The results showed that: (1) The transformation of production-living-ecological space contributed to the spatial-temporal evolution of the carbon budget while reshaping the spatial functions. The transformation also aggravated the mismatch of space resources and the carbon budget imbalance due to externality. Carbon compensation was an important mechanism for correcting the carbon budget imbalance. (2) From 2005 to 2020, there was a rapid transformation of production-living-ecological space in Southwest China. The industrial production space and urban living space crowded out the agricultural production space, grassland ecological space, and forest ecological space to realize rapid growth. All these transformations exacerbated the imbalance of the regional carbon balance, and the carbon balance rate dropped from 29.57% to 17.94%. Carbon emissions from production space were dominated by industrial carbon emissions, which was overgrowing and declining, and had not yet reached the peak. Residential carbon emissions increase and then decreased, with an increase in the proportion of urban and rural carbon emissions. Ecological space carbon sinks were dominated by forest carbon sinks, which increased and then decreased. The spatial scale of carbon sources was a key factor in the spatial differentiation of carbon emissions. (3) Southwest China played a substantial role in maintaining the national carbon balance,with a proposed amount of 25.997 billion yuan of carbon compensation to be received. At the city level, there were 38 compensation areas, including Ganzi and Aba, and 9 payment areas of Neijiang and Qianxinan.