Creating the Carbon Market Institution: Analysis of the Organizations and Relationships That Build the Market

Countries around the world are developing carbon emission markets as a governance mechanism to reduce greenhouse gas emissions and mitigate anthropogenic climate change. These markets are social institutions, designed to solve the transnational collective action problem of climate change. This paper explores the development of carbon emission markets from an institutional perspective to understand how market networks specifically and social institutions in general are constructed. Drawing on seminal work of institutional theorists and economic sociologists, this paper explores the way in which organizations build the institution of the carbon markets. As this paper aims to demonstrate, a number of public and private organizations, rather than regulatory bodies, build and operationalize the market. The paper analyses how networks of organizations develop the three pillars of the carbon market institution: regulative, normative and cultural-cognitive constructs. Since organizations build the institutional pillars of the carbon market network, the strength of the institution cannot be determined by regulation alone. Certainly regulation gives the carbon markets credibility, but their ability to become an institution of common practice relies on the strength and embeddedness of the organizations that build them. The paper concludes by suggesting that, while the carbon market institution serves to communicate and disseminate a common social value of reducing emissions, it generates a dangerous over-reliance on markets to address environmental concerns.