Yes, The Pope Supports A Carbon Price. Economists Just ‘Misinterpreted The Encyclical.’


The pope’s climate encyclical does not oppose carbon pricing. Quite the reverse, as we will see.

Leading climate economists who support putting a price on carbon, including William Nordhaus and Robert Stavins, have criticized the pope for supposedly opposing or ignoring carbon taxes and/or carbon pricing.

I have long thought that some people were misreading and overemphasizing one paragraph in the encyclical at the expense of others that are clearly supportive of carbon pricing. This week I was able to get some insight from economist and longtime Vatican observer, Anthony Annett, a 15-year veteran of the International Monetary Fund who is a climate change and sustainable development advisor at Columbia’s Earth Institute and Religions for Peace.

Annett worked with the Vatican in the run-up to the encyclical. In April, he helped organize a Vatican event on climate change co-sponsored by the Pontifical Academy of Sciences. And he co-authored detailed remarks on business and market insights and implications of the Encyclical delivered at the Vatican press conference for the encyclical, named Laudato Si’.

“My view is that Nordhaus misinterpreted the encyclical,” Annett told me. “First, the pope is criticizing the potential abuse of carbon credits, not ruling them out completely. Second, the pope says nothing explicitly about carbon taxes. And later on he says that business must bear the full social cost of its activity — which really implies putting a price on carbon.”

Before focusing on the source of the misinterpretation, let me first underscore the central point that Pope Francis implicitly — indeed, it’s almost explicit — calls for pricing carbon. Paragraph 167 of the encyclical explains that the 1992 Earth Summit in Rio echoes the 1972 Stockholm Declaration and “enshrined international cooperation to care for the ecosystem of the entire earth, the obligation of those who cause pollution to assume its costs, and the duty to assess the environmental impact of given projects and works.”

Polluters pay. They are obligated to assume the costs of polluting. To ensure there is no ambiguity about what he is saying, the pope repeats and expands the message a little later.

“As long as production is increased, little concern is given to whether it is at the cost of future resources or the health of the environment,” explains the pope in paragraph 195. He is explicitly critiquing the way businesses are driven to pursue “maximization of profits, frequently isolated from other considerations.” The pope immediately continues, “as long as the clearing of a forest increases production, no one calculates the losses entailed in the desertification of the land, the harm done to biodiversity or the increased pollution.”

The pope then directly spells out a fairly explicit call for putting a price on carbon equal to its “social costs”:

In a word, businesses profit by calculating and paying only a fraction of the costs involved. Yet only when “the economic and social costs of using up shared environmental resources are recognized with transparency and fully borne by those who incur them, not by other peoples or future generations,” can those actions be considered ethical.

In short, ethics requires the full social costs of actions that destroy a livable climate must be made clear to all and “fully borne by those who incur them.” Again, that seems like a fairly unambiguous endorsement for carbon pricing and for establishing a social cost of carbon. The pope is quoting his predecessor, Benedict, from a 2009 Encyclical Letter, which underscores the fact that this is not a new (or controversial) position from the Vatican.

A man looks at a copy of Pope Francis' encyclical on sale at the Vatican bookshop, in Rome, Thursday, June 18, 2015.

A man looks at a copy of Pope Francis’ encyclical on sale at the Vatican bookshop, in Rome, Thursday, June 18, 2015.

CREDIT: AP Photo/Andrew Medichini

Despite the pope’s straightforward statements in support of carbon pricing, Yale climate economist William Nordhaus just wrote an entire essay called “The Pope & the Market” in the October 8 issue of The New York Review of Books. He focused on this theme: “My major point is that the encyclical overlooks the central part that markets, particularly market-based environmental policies such as carbon pricing, must play if countries are to make substantial progress in slowing global warming.”

Similarly Robert Stavins, Director of the Harvard Environmental Economics Program, told the New York Times in June, “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.” On Monday, Stavins offered a lengthy defense of his position on his blog.

So what is the source of this confusion?

It is almost entirely due to paragraph 171 — set between the two endorsements of carbon pricing cited above. It states in full:

The strategy of buying and selling “carbon credits” can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors.

Stavins writes, “In surprisingly specific and unambiguous language, the encyclical rejects outright ‘carbon credits’ as part of a solution to the problem.” Stavins is correct that the encyclical is specific. But the term “carbon credits” — “crediti di emissione” in the Italian version — is actually quite ambiguous.

When I read it, I thought it was quite unclear exactly what the encyclical was attacking, which is why I have been trying to get some clarification.

Indeed, Stavins himself notes in his next paragraph:

If the references to “carbon credits” were intended to refer only to offset systems (such as the Clean Development Mechanism [CDM]) 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.

Carbon credits often refer to offsets in both English and Italian. Offsets are quite problematic, since they involve letting people sell credits for emission reduction projects that might have occurred anyway. That’s why I have written so many posts critical of domestic and international offsets (especially CDM) often using the term “rip-offsets. Even in 2015, we still see headlines exposing the abuse of CDM credits, such as “Russian industry paid to increase emissions under UN carbon credits scheme.”

Given how sophisticated and detailed the analysis is in the encyclical — and given the repeated embrace of the underlying principles of carbon pricing — I thought the authors probably meant to criticize offsets and dubious CDM projects. But the ambiguity of the “carbon credits” paragraph lent itself to misinterpretation. Without further clarification from the Vatican itself, I can understand why people took that paragraph as critical of carbon trading — although I still don’t understand how one can read the encyclical and think the pope opposes carbon pricing. I’d urge the Vatican to issue a formal statement clarifying the matter as we head toward Paris, where a great many countries will be advocating carbon trading.

As for the encyclical’s broader critique of capitalism as it is currently practiced, it seems pretty clear that we have turned the global economy into a giant Ponzi scheme that betrays our children and is doomed to collapse. And that’s without even considering issues of income inequality.

Finally, we just learned that the new Chair of the U.N. Intergovernmental Panel on Climate Change is the former Vice Chair, Korean economist Hoesung Lee. Lee explains in this video that if he had to choose the single most important policy for addressing climate change, it would be putting a price on carbon. A few have dissed him for such a view, but the fact is that we have ignored the call to action by the IPCC and others for so long, we’ve really limited the strategies available to us.

By any reasonable analysis, a serious and rising carbon price is the sine qua non for keeping total global warming below 2°C and averting catastrophic climate change. The plausible alternatives are far less market-friendly strategies. That’s a key reason why so many countries and governments — from the EU to China to California — embrace carbon pricing. With the support of the pope and other key international leaders, it seems likely this crucial policy will become even more widely used in the years ahead.