Grounded in organizational change theory, stakeholder theory, and innovation systems theory, this study explores how institutional innovation shapes carbon efficiency across 96 countries and regions. Drawing on insights from prior literature, we develop a conceptual framework that considers institutional innovation's potential direct effect on carbon efficiency, its indirect influence through knowledge and technology innovation (including creation, impact, and diffusion), and the moderating role of voice and accountability. Using panel data analysis, our empirical findings confirm that institutional innovation significantly improves carbon efficiency, both directly and via the mediating pathway of knowledge and technology innovation. The positive moderating effect of voice and accountability is especially evident in developing countries and autocratic regimes. Our study extends existing research by providing robust empirical evidence on the multiple channels through which institutional innovation affects environmental outcomes, and by emphasizing how governance contexts condition these effects. Policy implications suggest that differentiated institutional reforms, promoting democratic participation and technology diffusion in developing nations, enhancing governance frameworks in developed economies, and introducing targeted adjustments in autocratic systems, are essential for accelerating carbon neutrality and sustainable development.