In the Calvinist home where I grew up, theological debate was just breakfast table conversation. Our tools of scriptural exegesis included historical context and textual analysis and sometimes, it even got spiritual. For sure there was no hair too thin to split.

My career eventually took me into environmental economics and law, so it was with significant anticipation that I looked forward to the confluence of these two disparate fields of religion and environmental policy with the release last week of the Papal Encyclical on the environment and poverty, Laudato Si. And interestingly, those same historical, textural and spiritual tools of exegesis are useful in understanding the mystery of that document.

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The encyclical is a thought-provoking and challenging discussion of the mutual dependency among all creatures, and the role that faith can play in understanding our place in Creation. It is at once poetic and practical. Chief among the exhortations is that climate change must be addressed; the world must reduce its emissions of greenhouse gases. 

So I was startled by the pope’s statement that discouraged the “strategy of buying and selling ‘carbon credits.’” Philosophy professor John Heath labeled this assertion Pope Francis’ “climate error.”  Rob Stavins, a leading environmental economist, echoed the thoughts of many environmentalists when he observed that to protect the environment “we can do more, faster, and better with the use of market-based policy instruments.”

Why would the Pope single out this particular policy approach for disapproval?  Here are three potential explanations: historical, textual, and spiritual. 

In 2007 Vatican City, under the leadership of Pope Benedict, announced that it was going to attempt to be the first carbon neutral country. To accomplish this, the Vatican took several steps, including installing solar photovoltaic panels on the roof of the Paul VI Audience Hall. The cornerstone of the effort, however, was a carbon-offset project in Hungary that involved reforestation of a riverside area. The company Planktos and its subsidiary KlimaFa offered to donate sufficient carbon credits to cover the Vatican’s unabated emissions. 

The only problem: the project never took place even after a 2007 ceremony in which Planktos presented the offset certificates to Cardinal Paul Poupard. Officials at the Vatican were so embarrassed that by 2010 they were considering legal action. It may be then that the Pope’s surprising statement is rooted in historical experience.

It is also possible that there is a textual issue. While the encyclical decries “carbon credits,” it never mentions marketable allowances, carbon taxes or other government programs to provide incentives to reduce emissions.

This observation is not hairsplitting. Marketable allowances (often called cap-and-trade) programs place a constraint on the total emissions of a set of corporations (say, all fossil fuel producers and importers), allocates those allowances among the regulated companies, and then allows them to buy and sell the allowances to minimize the total economic cost of emissions reductions. If fully enforced, this can be a rigorous and cost-effective way to control emissions. 

In contrast, carbon credits are generally associated with offset projects such as the failed Hungarian initiative. Offset programs reward activities that reduce emissions or capture carbon dioxide from the atmosphere. However, it is devilishly difficult to measure how much carbon to accredit to each project. That difficulty has led to a great deal of prevarication by project developers and ignorance (often willful) by the companies that purchase the credits. 

Thus, it may be that my colleagues have been overly broad with their interpretations of the pope’s statement; perhaps he was limiting his disapprobation to offset-based carbon credits, intentionally excluding government sponsored marketable allowance programs. 

But there is also a spiritual interpretation of the pope’s view on carbon credits – one that dovetails with the rest of the encyclical.  Pope Francis has recognized that laws are imperfect controls on the human appetite, that any government program can be gamed at some level. Indeed the encyclical observes that: “The existence of laws and regulations is insufficient in the long run to curb bad conduct, even when effective means of enforcement are present.”

Moreover, while marketable allowances can encourage cost-effective reductions they do not necessarily alleviate poverty, the other moral imperative in the pope’s message. While it is possible to allocate the allowances under a cap-and-trade program to benefit the poorest countries, doing so would require generosity of spirit by economically developed countries. 

It is not clear why the pope disappointed so many cap-and-trade enthusiasts, whether for reasons of historical experience or misinterpretation of his message. It is clear, however, that the Pope believes that to succeed in protecting our “common home” we need not only a policy shift, but also a social and even spiritual transformation that simultaneously protects the global environment and the most disadvantaged citizens of the world.

Richards is professor of environmental economics and policy at Indiana University School of Public and Environmental Affairs. He was recognized by the Intergovernmental Panel on Climate Change for his role as a research scientist in “contributing to the award of the Nobel Peace Prize” when the IPCC won the honor in 2007.