Unravelling the Role of Institutions in Market-Based Instruments: A Systematic Review on Forest Carbon Mechanisms

Forest ecosystems provide various services that are crucial to human beings, in which carbon sequestration and storage is one of them with the most market potential and is usually governed by market-based instruments (MBIs). MBIs do not operate alone but in the hybrid governance arrangements. While the importance of public institutions has been identified, there is still a need to examine the specific role of public institutions in the market-oriented mechanism. Our work seeks answers to this question. This meta-study presents an up-to-date picture of MBIs targeted at forest carbon, in which 88 mechanisms are synthesized in a quantitative database. We analyze and discuss policy design features of these mechanisms and group them into nine types of MBIs. We find that many instruments coexist and/or interact with other instruments. In light of these results, we introduce the concept of policy mix and argue that the interplay among policy instruments can be complementary or interdependent. Using cluster analysis to identify underlying patterns, we reconfirm previous findings that there are distinct differences between public and private PES schemes, but also recognize a new cluster and label it as a ‘legally binding mechanism’. We discover that the role of public institutions is pronounced in the forest carbon mechanisms, and they can be the buyer, seller, regulator, coordinator, intermediary, and facilitator. Besides, public institutions tend to play an increasing role in the future climate policy arena. We believe that public institutions should stand out and create enabling conditions for private governance and finance.