Among environmental activists, the international market for carbon credits is often compared to the medieval sale of indulgences. Pope Francis presides over the Roman Catholic church, the institution that created the market for indulgences, so you might expect him to be more sympathetic on this issue.
And yet his recent encyclical “Laudato Si,” while forcefully urging action to combat climate change, specifically criticizes the sale of “carbon credits.”
The pope claims that the environment cannot be “safeguarded or promoted by market forces.” Confronting the climate crisis will require a deeper, spiritual transformation of society, replacing “consumption with sacrifice, greed with generosity, wastefulness with a spirit of sharing.”
I find nothing objectionable about the pope’s moralizing tone and language of “sin.” But his skepticism about market-based solutions to climate change is rooted in a misunderstanding. A market-based approach to controlling greenhouse-gas emissions — through carbon taxes or tradable emissions permits — does, in fact, reflect moral conviction. The pope gets carried away condemning the “efficiency-driven paradigm of technocracy,” overlooking the fact that efficiency, in this context, is a moral principle.
The central idea in all of these programs — from the Emissions Trading System in Europe to the carbon tax adopted in the Canadian province of British Columbia — is to put a price on carbon, so that all businesses and consumers are held accountable and charged for the environmental consequences of their actions.
It’s a moral idea that Francis himself endorses elsewhere in the encyclical, when he agrees that “the economic and social costs of using up shared environmental resources” must be “fully borne by those who incur them.” That idea, called “full cost accounting,” is precisely what motivates those who want to see a price on carbon. When prices reflect the full social cost of consumption, it allows us to minimize the waste of resources — or as economists would put it, to maximize efficiency.
This commitment can be found at the heart of the “polluter pays” principle, which Pope Francis also endorses. Most people like this idea when it’s read forward: “If you pollute, then you should pay.” They dislike it, however, when read backward: “If you’re willing to pay, then you should be allowed to pollute.”
It’s the second reading that offends people when they contemplate rich countries, rather than reducing their own carbon emissions, paying people in poor countries to do it for them. Yet any sensible approach must allow this, because of the giant disparities in the cost of reducing emissions in different countries.
For countries that rely on nuclear power, like France, or burn very little coal, reducing greenhouse-gas emissions is enormously costly. By contrast, China can achieve reductions at a small fraction of the cost. So it makes sense for the reductions to happen in China, not France. This is what emissions trading allows.
The pope is not hostile to market mechanisms because he is a raving socialist, as some have suggested. Instead, his stance is a natural consequence of his theology.
To understand the pope’s position, remember that, even though he is adopting a progressive stance on the environment, he is not a liberal. Indeed, he rejects one of the central tenets of liberalism, which is a willingness to acknowledge genuine disagreement about the good.
The fundamental problem with markets, in Pope Francis’ view, is that they cater to people’s desires, whatever those desires happen to be. What makes the market a liberal institution is that it does not judge the relative merits of these desires. The customer is always right.
Pope Francis rejects this, describing it as part of a “culture of relativism.” The customer, in his view, is often wrong. He wants an economic system that satisfies not whatever desires people happen to have but the desires that they should have — a system that promotes the common good, according to the church’s specification of what that good is.
And there lies the deepest tension in this encyclical. In the introduction, Francis addresses the work not just to Catholics but to all of humanity — in recognition of the fact that climate change is a global problem and will require the cooperation of all peoples, of all faiths, to resolve. But he then appeals to a conception of the common good that is specifically Christian, and criticizes markets on the grounds that they do not promote that conception.
Here he reveals the limitations of his own approach. The problem of climate change is so urgent that we cannot wait around for people to come to some kind of spiritual agreement. What we can demand, here and now, is that people pay the full cost that their consumption imposes on others, including future generations.
This is what carbon pricing achieves. This market-based solution, precisely because it is liberal, is the only one that has any chance of serving as a basis for global cooperation.
Joseph Heath is a professor of philosophy at the University of Toronto.