On Morals, Markets, and Climate Change: Exploring Pope Francis' Challenge

The year 2015 saw conflicting messages about the value and desirability of carbon markets. On one hand, carbon markets advanced in and among several countries. The European Union’s Emissions Trading System (EU ETS) continued to operate, now in its third phase. China announced plans to launch a nationwide carbon market to limit greenhouse gas emissions, building on its seven pilot trading programs. The U.S. Environmental Protection Agency (EPA) incorporated market-based compliance options in the final version of its Clean Power Plan—a rule promulgated pursuant to the Clean Air Act to limit carbon dioxide emissions from existing power plants. The newly elected government in Canada ran on a platform of a national program to integrate the different carbon pricing schemes emerging at the provincial level. South Korea launched its own cap-and-trade program to limit greenhouse gases. Proponents of carbon markets ended the year on a high note with the conclusion of the Paris Agreement in December, resulting in a new international regime to reduce global greenhouse gas (GHG) emissions that includes a key provision implicitly allowing the use of market mechanisms as an option for doing so. On the other hand, critics of carbon markets also raised concerns in 2015. Pope Francis offered a high-profile contrary view in Laudato Si, the papal encyclical released in July 2015. In a broad critique, the pope questioned whether market capitalism can effectively protect the poor, and in one passage specifically criticized “the strategy of buying and selling ‘carbon credits.’” As discussed in detail in part III of this article, there are conflicting views regarding the meaning of this passage, but it is clear that the pope’s language brought renewed attention to moral and ethical concerns regarding emissions markets. Beyond markets or other policy mechanisms, the general debate about climate policy is often framed in moral and ethical terms. Some proponents of greenhouse gas mitigation efforts emphasize a right to a stable climate system, a duty to protect the rights of future generations, nature, or divine creation, and the prospect that climate change will disproportionately afflict the world’s poor—who are both least responsible for the global commons problem and most vulnerable to its impacts in rising sea levels, increased storm activity, floods, and drought. Economic analyses of climate change policy may not appear to be presented in moral terms, but they typically rest on the premise that climate policy is warranted when it advances the moral/ethical objective of maximizing social net benefits or aggregate well-being. At the same time, various critics of climate policy (that is, opponents of climate policy in general, whether using markets or other policy mechanisms) also raise moral claims, such as the concern that climate policy would impinge on individuals’ freedom from government control, would burden poorer countries’ rights to develop free of eco-imperialism, or exhibits hubris because humans cannot be powerful enough to alter divine creation. This article focuses on the morality of markets as a mechanism to mitigate climate change rather than on the morality of climate change itself or climate policy in general. Over the past half century, some environmental advocates favored using market mechanisms, while other environmental advocates opposed market-based policy design on both moral grounds. Market-based policies, such as those aimed at reducing lead in gasoline and acid rain, were adopted in the 1980s and 1990s as a means to achieve environmental goals at lower cost than traditional, inflexible regulatory instruments. As these market-based policies began to overcome political hurdles to their adoption, many environmental advocates (especially the large national environmental groups) came to view well-designed market-based policies more favorably. A new flank of critics arose opposing the growth of market-based environmental policies due to their opposition to the underlying environmental goals, rather than to markets as a policy mechanism. Now, opposition to market-based policy design has been renewed by some advocates of strong climate policy, including Pope Francis and some environmental and social justice groups. This article explores the contrast between the movement toward environmental markets, characterized by the emergence of new carbon markets across the globe, versus the renewed opposition to markets manifested in the pope’s encyclical and the views of some environmental advocates. It considers the arguments raised by these latter critics, explores alternative views of their concerns, and examines how market-based climate policies could be designed to alleviate these concerns. Others have examined the moral and ethical dimensions of market-based climate policies, but this article contributes to the literature by providing a contemporary examination of the papal encyclical’s prominent questioning of the use of markets to address climate change. It also speaks to issues that more than 190 countries now face under the Paris Agreement and that forty-eight U.S. states face under the Clean Power Plan as they decide what role, if any, market-based instruments will play in their pursuit of the greenhouse gas reductions. And it explores options for designing a market-based instrument to address climate change in ways that could ease some of the moral criticisms, and discusses some of the tradeoffs involved in those design choices. Part II reviews how market-based mechanisms are being designed for climate change policy. Part III examines the pope’s encyclical and the moral issues it raises regarding carbon markets. Part IV assesses in more detail the moral objections to using market-based mechanisms for climate change policy and offers counterpoints to these arguments. Part V discusses possible ways to reconcile these viewpoints by designing market-based climate policies in ways that resolve or reduce the critics’ concerns and discusses the tradeoffs associated with each approach. Part VI concludes by offering specific insights into the decisions faced and tradeoffs presented by market-based climate policies.

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