Pope Francis’ message on climate change and markets

Scott Tong Sep 21, 2015

Pope Francis’ message on climate change and markets

Scott Tong Sep 21, 2015

When Pope Francis visits the U.S. this week, he is likely to preach about climate change and the role of markets, given his encyclical on the environment. Yes, markets.

Many classical economists are scratching their heads about his message so far. Some consider the pope’s writings anti-capitalist.

“It’s sort of too far beyond the pale to even be engaged by serious people,” said Steve Cicala, an assistant professor at the University of Chicago. 
Less controversial, in the pope’s encyclical on the environment, is his view of the cause of the problem. He said the earth is increasingly an “immense pile of filth,” and that polluters must pay for polluting.

“Although he speaks his language, this is really the language of market failure,” said Lord Nicholas Stern at the London School of Economics, who wrote a defining paper on climate change, which he calls “the greatest and widest-ranging market failure ever seen.”

Here’s why: carbon dioxide from burning fossil fuels hurts the environment — there’s a cost. But the polluters in most of the world pay nothing.

“If you, because it’s costless, dump chemicals upstream from a brewery, you affect the ability of the brewery to do its work,” Stern said. “And of course with climate change, you are filling up the atmosphere with greenhouse gases. And using essentially the atmosphere as a sewer into which you dump your stuff, for nothing.”

“Stuff” that traps heat, in many cases, for centuries.

Experts like Stern estimate the impacts of more floods and less sea ice (from warming temperatures). They speak the arcane language of tons of CO2 emitted, and dollars of damage per ton.

“He says that God always forgives, people sometimes forgive, and nature never forgives,” Stern said.
So, if a failed market causes the problem, can the market fix things? The standard policy answer is yes. And complex trading markets in carbon that make it expensive to pollute are growing around the world.
But the Vatican document said markets are “not good” for rationing the burning of fossil fuels, or of water use. It says the environment is “defenseless” against market forces.

“This is where many economists who study environmental markets and carbon markets might take exception to the pope,” said Brian Murray, an environmental economist at Duke University.

That’s tricky for Murray, who is also Catholic. He said markets to limit carbon emission absolutely do curb emissions.

But, he said, the Vatican soured on the idea a few years ago when it tried to use those markets to go carbon neutral.

“They put up solar panels on the roof of buildings in the Vatican,” Murray said. “And the other thing they did was…purchase these carbon offsets. And they did not materialize.”
The Vatican paid a company to plant a new forest. The new trees would absorb carbon dioxide, and reduce the Vatican carbon footprint to zero. But the forest never happened — carbon market fail. The broader question is whether Pope Francis likes markets at all.

Carolyn Woo, CEO of Catholic Relief Services and a former business school dean, says yes. In her view, the pontiff just believes in regulating the market, which is nothing new.

 “There are product standards, for example,” she said. “There are rules regarding labor. There are taxes to be paid. So markets need some degree of regulation, in order to make sure that we don’t create situations where it eliminates a swath of people.

Especially poor people — a big focus of the encyclical. Many studies suggest climate change disproportionately hurts poor agrarian countries that rely on stable weather.

“It’s one thing to say that when markets work, some people win and some people lose, and that’s too bad,” Woo said. “If you are weak, you don’t need to survive. That is not our conception of the human society.”

As much as Woo defends the Pope — she joined him in Rome for the release of the encyclical — she wishes his writing were more “nuanced” on business and markets.

Steve Cicala at the University of Chicago is less charitable.

“He comes out as anti-air-conditioning,” Cicala said. “He says ‘the markets which immediately benefit from sales stimulate ever greater demand,’ as if there is some sort of market conspiracy to get people to buy air conditioners.”

Cicala said the document shows plainly the Pope’s skepticism of a modern market economy.
It’s a polarized reaction to a man known for strong opinions. And the question is, how will he choose his words when he speaks in the U.S. starting Wednesday?

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