Yesterday Pope Francis issued a sweeping new encyclical on the environment entitled “Laudato Si”.  The encyclical runs 184-pages and covers a range of issues.  Most noteworthy is its endorsement of the proposition that climate change is real and caused primarily by human activity.  The encyclical notes that the worst impact of climate change will probably be felt by the poorest citizens of the poorest countries, who will be least able to adapt to the rising seas and devastating droughts that are likely to occur without swift remedial action.

Laudato Si is a powerful call to address climate change as a moral issue. “Human ecology,” writes Pope Francis, “is inseparable from the notion of the common good, a central and unifying principle of social ethics.”  Addressing the challenges of climate change “represents one of the principal challenges facing humanity in our day” and is an “ethical imperative essential for effectively attaining the common good”.

Pope Francis lays the blame for climate change on “the impulsive and wasteful consumption that is part of contemporary lifestyle.”  Citing Benedict XVI, Pope Francis suggests that “technologically advanced societies must be prepared to encourage more sober lifestyles, while reducing their energy consumption and improving its efficiency.”

The Pope is critical of certain efforts to address climate change, particularly on those that seek to use market mechanisms to do so.  Carbon trading schemes come in for particularly harsh criticism:  “The strategy of buying and selling “carbon credits”, writes Pope Francis, “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.”

Pope Francis tells us that climate change is a consequence of the culture of materialism that is rampant in advanced societies.  He believes that free market mechanisms will be ineffective in addressing the problem suggesting instead that it be approached as a moral and ethical issue.

Laudato Si is a laudable attempt to make climate change a moral issue for Catholics and non-Catholics alike.  Pope Francis’ effort is important and welcome.  But the Pope’s suggestions that the solution requires advanced societies to consume less by accepting more “sober lifestyles” and his apparent rejection of all market-based solutions to anthropogenic carbon emissions are more questionable.

The key to addressing climate change in advanced societies is not to consume less but rather to consume more efficiently.  Consumption and material prosperity are generally good things for human society.  Health, happiness and longevity are worthy and moral goals.  While material prosperity cannot guaranty any of them, there is a correlation that is difficult to deny.  The enemy is not consumption.  The enemy is the waste that inefficient consumption produces.

Efficiency is a concept that the energy storage community understands well.  At its core, storing energy on the grid is about reducing the waste generated by using electricity.  That waste includes carbon emissions.  But it also includes other undesirable byproducts: excess wires, excess infrastructure, and excess electricity production, just to name a few.  The electricity grid is built to service 110% of theoretical demand at peak times.  Smoothing or eliminating those peaks by moving electrons over time as well as over space would bring a massive increase in efficiency to the grid and a massive reduction in the waste that the grid produces.

Laudato Si speaks in an important way to those working in electricity storage.  The advantage of storage is easy to imagine.  But discussions concerning its commercial deployment usually focus on whether its economic benefit is greater or lesser than its economic cost.  Pope Francis reminds us that there is another factor which needs to be considered in those discussions, a factor that does not appear on any balance sheet: Energy efficiency is a moral issue, not just an economic one.

Pope Francis’ apparent disdain for market-based solutions to climate change, and his particularly harsh criticism of carbon credit trading, are not entirely surprising and are to some extent welcome.  Having been involved in many of the discussions about carbon trading that took place in Chicago, a center of the derivatives industry, at the end of the last decade, I was always horrified by the small impact that such schemes would have on actual carbon emissions relative to the huge fees and profits that stood to be made by those designing and administering such systems.  It was an inefficient solution to the problem.

But a more efficient market-based system could be a valuable tool in addressing climate change.  The fundamental problem giving rise to carbon emissions is that there is no cost to emitting carbon.  This problem was anticipated in Garrett Hardin’s seminal article “The Tragedy of the Commons” published in Science magazine 1968.  Hardin points out that rational individuals consuming a common resource for individual gain will inevitably deplete it.  The common resource (in the case of climate change, an atmosphere relatively free of anthropogenic carbon emissions) must be regulated in order to prevent that depletion.  Placing an economic cost on depletion is a form of regulation and that is what market-based systems try to do.  Pope Francis is wrong to disdain market-based approaches entirely by focusing on one admittedly inefficient proposal.

In a broader sense, however, Pope Francis has a point.  The cost that must be imposed on those who deplete the commons should not be, and must not be, an economic cost alone.  The market is only a tool and an imperfect one at that.  Protecting the commons requires that its depletion carry a heavy, recognized and very public moral cost.  Energy efficiency should be seen as a moral obligation, not just an economic choice.  Laudato Si is an important step in that direction.