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The Papal Encyclical and Climate Change Policy

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On June 18, 2015, Coral Davenport, writing in the New York Times, was the first in the press to note that the encyclical on the environment, Laudato Si’, released by Pope Francis that same day, with tremendous praise from diverse quarters, “is as much an indictment of the global economic order as it is an argument for the world to confront climate change.”

 
 

The New York Times and a Couple of Asia Trips

 
 

The Times article included the following: “…environmental economists criticized the encyclical’s condemnation of carbon trading, seeing it as part of a radical critique of market economies. ‘I respect what the pope says about the need for action, but this is out of step with the thinking and the work of informed policy analysts around the world, who recognize that we can do more, faster, and better with the use of market-based policy instruments — carbon taxes and/or cap-and-trade systems,’ Robert N. Stavins, the director of the environmental economics program at Harvard, said in an email. The approach by the pope, an Argentine who is the first pontiff from the developing world, is similar to that of a ‘small set of socialist Latin American countries that are opposed to the world economic order, fearful of free markets, and have been utterly dismissive and uncooperative in the international climate negotiations, Dr. Stavins said.”

 
 

Those are accurate quotes from an email I sent to Coral Davenport in response to her inquiry the same day. The reason why I sent an email, rather than calling was that I was, at that moment, approximately 37,000 feet over the Pacific Ocean, flying from Seoul (where I had spoken at the third annual Future Energy Forum) to San Francisco, on my way home to Boston.

 
 

The following week, I was flying back to Asia (this time to Beijing for a workshop jointly sponsored by the Harvard Project on Climate Agreements and China’s National Development and Reform Commission — a topic for a future blog post, but not for today). As I sat in the departure lounge at Chicago’s O’Hare International, I began to see on my iPhone a small flood of hostile commentary from the blogosphere, indicating that I had unfairly “attacked the Pope.”

 
 

Well, writing an email rather than chatting on the phone with a reporter may eliminate some spontaneity, but it does have the advantage of preserving a record. So, I’m pleased to be able to share with readers today the views I offered on June 18th, long before the Pope’s recent visit to Cuba and the United States. My views have not changed.

 
 

Why Write About This Now?

 
 

That’s a reasonable question. In part, I’m inspired by a marvelous essay by Yale professor William Nordhaus, “The Pope & the Market,” which appears in the October 8, 2015 issue of The New York Review of Books. However, my thoughts are completely independent from his, and so he should not be indicted for anything I have to say. But I do heartily recommend his essay, and urge readers to take a look at his commentary (as well as mine).

 
 

With that preamble out of the way, here are the reactions of one environmental economist, yours truly, to Laudato Si’, nearly verbatim from my June 18th message from 37,000 feet over the Pacific Ocean, with some additional text and links for this blog essay.

 
 

An Environmental Economist Reflects on the Papal Encyclical

 
 

The Pope is to be commended for taking global climate change seriously, and for drawing more world attention to the issue. There is much about the encyclical that is commendable, but where it drifts into matters of public policy, I fear that it is — unfortunately — not helpful.

 
 

The long encyclical ignores the causes of global climate change: it is an externality, an unintended negative consequence of otherwise meritorious activity by producers producing the goods and services people want, and consumers using those goods and services. That’s why the problem exists in the first place. There may well be ethical dimensions of the problem, but it is much more than a simple consequence of some immoral actions by corrupt capitalists.

 
 

The document also ignores the global commons nature of the problem, which is why international cooperation is necessary. If the causes of the problem are not recognized, it is very difficult — or impossible — to come up with truly meaningful and feasible policy solutions.

 
 

So, yes, the problem is indeed caused by a failure of markets, as the Pope might say, or — in the language of economics — a “market failure”. But that is precisely why sound economic analysis of the problem is important and can be very helpful. Such analysis points the way to working through the market for solutions, rather than condemning global capitalism per se.

 
 

Should Carbon Markets be Condemned?

 
 

In surprisingly specific and unambiguous language, the encyclical rejects outright “carbon credits” as part of a solution to the problem. It says they “could give rise to a new form of speculation and would not help to reduce the overall emission of polluting gases”. The encyclical asserts that such an approach would help “support the super-consumption of certain countries and sectors.”

 
 

That misleading and fundamentally misguided rhetoric is straight out of the playbook of the ALBA countries, the small set of socialist Latin American countries that are opposed to the world economic order, fearful of free markets, and have been utterly dismissive and uncooperative in the international climate negotiations. Those countries have been strongly opposed to any market-based approaches to climate change, including carbon taxes, cap-and-trade, and offset systems, as well as any approaches that would allow — through appropriate linkage — the financing by one country of emissions reductions in another country (see my previous essay at this blog on A Key Element for the Forthcoming Paris Climate Agreement).

 
 

If the references to “carbon credits” were intended to refer only to offset systems (such as the Clean Development Mechanism) and not to cap-and-trade systems, then I would be much less concerned about the Pope’s complaints. However, the encyclical does not make the distinction. Indeed, I doubt that the authors of the encyclical recognize the difference, and unfortunately, readers of the encyclical will likewise lump together all carbon markets, which is what some policy makers also do, unfortunately.

 
 

Out of Step

 
 

I respect what the Pope says about the need for action, but his unfortunate attack on the use of the market to address climate change is out of step with the thinking and the work of informed policy analysts and policy makers around the world, who recognize that we can do more, faster, and better with the use of market-based policy instruments — carbon taxes and/or cap-and-trade systems. UN Secretary General Ban Ki-moon has been outspoken in precisely this regard.

 
 

Furthermore, the United Nations Framework Convention on Climate Change itself (Article 3.3) explicitly states that “policies and measures to deal with climate change should be cost-effective so as to ensure global benefits at the lowest possible cost” and thereby be more ambitious. That is why market-based climate policy instruments are an important option for many countries. Keeping costs down will help inspire greater action.

 
 

Concluding Thoughts

 
 

The Papacy is to be commended for having drawn attention to climate change as a major issue. But, sadly, the encyclical fails to recognize that because externalities (such as CO2 emissions) are a type of market failure and because the global commons nature of the problem and consequent free riding are also a profound market failure, it is for these reasons that working through the market is absolutely necessary — in order to address the climate problem in ways that are scientifically meaningful, economically sensible, and ultimately politically pragmatic.

 
 

By incorporating the anti-market rhetoric of the ALBA countries, the encyclical unfortunately goes beyond these errors of omission to incorporate significant errors of commission by emphasizing a perspective that is not progressive and enlightened, and would — I fear — ultimately work against meaningful climate policy at the international, regional, national, and sub-national levels.

 
 

That is why I said that although there is much about the encyclical that is commendable, where it drifts into matters of public policy it is — unfortunately — not helpful.

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