Author’s Note
Daniel C. Esty https://orcid.org/0000-0001-9980-1147. The content of this paper was presented at the PAS-PASS Vatican joint symposium “From Climate Crisis to Climate Resilience” Summit Meeting in May 2024. I have no known conflicts of interest to disclose. Correspondence concerning this article should be addressed to Prof. Dan Esty, Email: daniel.esty@yale.edu
Climate change presents an existential threat to the global community. It poses a risk of increased intensity and frequency of hurricanes and typhoons, changed rainfall patterns leading to both more droughts (and thus wildfires) and floods as well as potentially reduced agricultural productivity. The scientific evidence of trouble ahead is mounting. Temperature records suggest that the summer of 2023 was the hottest one in a millennium.[1] Ocean warming, which is connected to rising sea levels and loss of habitable land, appears to have gone even further off the charts.[2] Beyond climate change, the scientific team tracking planetary boundaries now believes that, for six of nine essential Earth Systems, human-caused disruptions may have pushed us beyond critical limits, meaning that the safe operating space for the planet has been transgressed.[3] And yet, world leaders dither and the policy response to the looming threat remains inadequate.
The elements of a successful response to climate change are well understood. Simply put, we need a new foundation for the global economy, which ends the build-up of greenhouse gases (GHGs) in the atmosphere. This transformation requires a shift the energy underpinnings of society from fossil fuels to clean and renewable energy sources.
But the policy process to deliver this shift has been tortuous. The global community clearly understood the challenge as of 1992 when world leaders gathered at the Rio Earth Summit to sign the UN Framework Convention on Climate Change. That treaty committed nations to avoid dangerous anthropogenic global warming and set out initial targets and timetables for action. And while the 120 Presidents and Prime Ministers at the Rio Summit celebrated this perceived success, the Canadian diplomat and businessman Maurice Strong who served as the Secretary General to the United Nations Conference on the Environment and Development (as the Rio gathering was formally known) observed at the time that the ultimate test was whether the Rio commitments produced real success in the years that followed – gauged by whether GHG emissions were reduced and the threat of climate change avoided.[4]
As decades have passed, further claims of success have been made, but there is little evidence of the broad-scale transformation required to mitigate the negative impacts of climate change. At the COP28 climate summit meeting in 2023 in Dubai, government officials representing nearly 200 countries agreed that the world must “transition away from fossil fuels.”[5] Negotiators also established a Loss and Damage mechanism to provide funding for nations affected by climate change-caused disasters, representing an important commitment to equity and to the principle that the victims of climate change (who often bear very little responsibility for the build-up of emissions in the atmosphere) should have resources for recovery available.
1. Hard Realities Emerging
But the real story of the Dubai convocation was the Global Stocktake meant to assess progress on the climate change action commitments of each party to the 2015 Paris Climate Change Agreement. The review, which added up all of these action elements (formally known as Nationally Determined Contributions or NDCs) revealed that overall emissions are rising, not falling. The Stocktake made clear that, while investments in alternative energy reduced GHG emissions in a number of nations,[6] only a few are on a trajectory to meet the target of net-zero GHG emissions by mid-century established in the 2021 Glasgow Climate Pact.[7] More troublingly, in a number of developing nations (including many of the most dynamic economies of the Global South) emissions continue to rise – highlighting the simple fact that real success in meeting the climate change challenge requires a just energy transition that moves all nations together toward net-zero GHG emissions in 2050.
The disappointing Global Stocktake outcome forces us to clarify the theory of change previously advanced in the Paris Agreement and to rethink the world community’s response to the looming climate crisis. In this regard, we must consider a critical set of questions: What comes next? How do we shift the GHG trajectory? What should we do differently to meet the demands of the moment? And most critically: how do we structure policies to deliver transformative change and bend the emissions trajectory downward at the speed and scale required?
To meet the 21st century Sustainability Imperative,[8] we must identify the elements of a just transition to sustainable energy future and the pathways for delivering them. The following section provides a sketch of what will be required.
2. Delivering a New Energy Foundation for the Global Economy
Climate science continues to evolve, but the scientific consensus on the need to stabilize atmospheric concentrations of GHGs – which will require dramatically reduced emissions in the coming decades – has been broadly accepted.[9] The 2015 Paris Agreement establishes an over-arching goal of holding the change in global average temperatures to well below 2 degrees Celsius above pre-industrial levels with a further commitment to try to limit global warming to 1.5 degrees Celsius.[10] The 2021 Glasgow Climate Pact sharpens this target and sets the timetable for net-zero GHG emissions at mid-century.[11]
The endpoint is straightforward: a comprehensive shift to clean and renewable energy across the globe. The challenge arises from the scope and pace of the change required, which involves every person and enterprise in the world while taking into account the diversity of circumstances that must be accommodated. While the policy challenge can seem daunting, a good bit of what will be required to deliver the requisite build-out of the sustainable energy infrastructure for the future is known. Indeed, we can specify four critical policy elements: (1) innovation, (2) finance, (3) business engagement, and (4) equity (which is essential to the legitimacy of the policy framework).
2.1 Innovation
One of the keys to a successful transition will be continued innovation to ensure a relatively smooth and ever-cheaper shift from a past powered by fossil fuels to a sustainable energy future. While a central focus of innovation efforts has been – and should continue to be – technology breakthroughs, the push for creative new approaches to energy challenges must be much wider. It should include efforts to promote: (a) new policies and incentives for changed behavior (including a push for greater energy efficiency); (b) fresh thinking and new strategies for public engagement; (c) redoubled commitments to capacity building that highlight the opportunities in the emerging clean energy economy and the training required to transition workers in all nations toward jobs of the future; (d) innovative finance to make it possible for a wide swath of individuals, companies, and communities to replace their existing energy-consuming devices and equipment with cutting-edge alternatives; and (e) strategic partnerships that convene industry, NGO, and government actors to bridge gaps in the pathway from the energy past to the clean energy economy of the future.
Innovation can be spurred with a variety of policy tools. Of particular importance will be efforts to put a price on GHG emissions and thereby making those responsible pay for the harm they cause.[12] Essentially, every time a purchase is being made, buyers should be confronted with price signals that steer their choices toward the socially preferred clean energy alternative. This financial incentive helps to promote care in the decisions being made, but also ensures – as a matter of climate justice – that those whose choices inflict harm on others pay for these impacts. By making those responsible pay fully for the damage being done by gasoline-powered cars, coal-fired electricity, steel derived from GHG-intensive coke ovens, and every other source of GHG emissions, we create powerful incentives for innovators to develop clean cars, electricity, steel, and more.
Although GHG pricing offers the most effective climate change policy and the greatest spur to innovation, similar incentives for innovation can be generated by providing subsidies for clean energy alternatives. While such incentives are generally considered to be a second-best policy alternative as they drive change more narrowly, sometimes a subsidy-based approach may be preferred as the only politically viable option available or because it permits investments in innovation to be targeted to specific problems.[13]
Finally, regulations that require adoption of new technologies may be the most useful – and, perhaps, the most efficient (and cost-effective) way to move the energy transition forward in some circumstances. Indeed, while long derided as inflexible and thus inefficient, performance standards and other command and control mandates might be the best option where the purchaser has little capacity or incentive to make an informed choice or society would benefit from network effects or other economies of scale in a shift to new technologies. We have witnessed, for example, dramatic energy efficiency improvements from the shift away from incandescent and fluorescent bulbs to LED lighting. Similar government-mandated building efficiency standards may be essential to overcome information deficiencies and other market failures that would otherwise slow the move toward low-carbon homes, offices, factories, and commercial buildings.
Ultimately, the energy transition will be advanced by having a portfolio of incentives and policy tools available, from price signals to subsidies to regulatory mandates – providing green lights that tell individuals and businesses when and where to go and red lights that signal the need to stop certain activities.[14] In addition, the presence of a diverse set of policy instruments is fundamental to a just transition insofar as the wealthiest segments of society may invest in strategies of evasion that allow them to dodge any narrowly defined set of transition strategies and even legal requirements – and thus become free riders on the efforts of others.[15] But a portfolio approach that casts a wide net is likely to catch these potential free riders and ensure that they align their business models and energy choices with the societal commitment to deep decarbonization.
2.2 Finance
Fundamental to a successful energy transition are policies that ensure all nations, communities, enterprises, and individuals move together toward the clean energy future. As I discussed briefly above and in more depth in the Business Engagement section below, some corporate entities may seek a competitive advantage by shirking their responsibility to develop low-GHG-emissions business models and thus bring products to the marketplace at lower cost than others in their industry. But in other cases, underperformance is more a function of circumstances than design. In this regard, many companies and communities (especially in the Global South) lag behind in the push toward a clean energy future because they lack the capacity to invest in their own transition.
A successful and comprehensive (not to mention just) transition thus will require scaled-up commitments of capital to fund clean energy projects, equipment, and infrastructure – especially in the developing world. Some of these investments can be financed on a market basis. For example, clean energy power generation facilities produce electricity at costs that are competitive with fossil fuel alternatives. In these cases, the market-based returns on the project will justify the investment made.
But in many other cases, the shift to clean energy alternatives will be at some cost disadvantage compared to the status quo, particularly in jurisdictions that do not make GHG emitters pay for the harm they cause. In these cases, investments in new technologies may require blended finance – which means that some part of the project can be done on a market basis, but that subsidies (through some combination of Green Banks, Green Bonds, and other creative finance structures) will be required to make up the difference in cost between the status quo and the new clean energy approach.[16]
From a theoretical perspective, we must recognize that clean powerplants are what economists call a mixed good, meaning that they are, in part, private goods to the extent that the electricity generated can be sold for a price and consumed by specific people just like any other unit of power. But they have a public good dimension to extent that GHG-free electricity offers benefits to society above and beyond the value received by the individuals who use the power to run their machines, appliances, or devices. To ensure an optimal level of these clean energy goods (providing what economists call positive externalities), society must provide support to overcome the market failure.[17]
Creative clean energy financing at the national, regional, and global levels therefore emerges as a key policy lever for advancing a just and speedy transition to a sustainable energy future. In the United States, the Inflation Reduction Act offers substantial clean energy subsidies.[18] Europe has begun to make similar investments through its Green Deal – and China has long subsidized its clean energy sector.[19] But to advance clean energy projects across the world at the requisite pace and scale, similar funds need to be made available across all nations with particular emphasis on blended finance strategies for countries lacking the resources or financial infrastructure to make large and long-term investments.
This need has long been recognized with calls for $100 billion/year in climate change capital for the Global South having been under discussion for decades.[20] What has become clear is that reaching the scale of finance needed will require substantial flows of private capital. In this regard, the finance world is beginning to get mobilized through initiatives such as the Glasgow Financial Alliance for Net-Zero (GFANZ), which brings together 400+ financial institutions under the leadership of former Bank of England Governor Mark Carney. But, as noted above, the willingness of private capital to finance clean energy infrastructure will not occur at scale unless there is parallel public funding to offset the risk of investing in emerging but risky climate-smart solutions. Support for these investments must be undergirded by expanded flows of capital through government-backed Green Banks (such as the one set up by the State of Connecticut in 2011)[21] and aid agencies as well as by new commitments of climate finance through the World Bank and other multilateral development banks as well as the International Monetary Fund.
2.3 Business Engagement
Ultimately, the sector most critical to a sustainable energy future is the business world. Indeed, it is the everyday decisions of hundreds of millions of corporate leaders in small and large enterprises in every nation that determine what products get offered in the marketplace and whether these goods and services are produced on a sustainable basis. Thousands of CEOs and executives across industries gathered at recent COP climate change summit meetings Dubai in 2023 and in Sharm el-Sheikh in 2022 and expressed their readiness to restructure their business models for a sustainability future.[22]
But real success in decarbonizing the global economy requires businesses at all scales in every industry and in every corner of the world to regear their activities in alignment with the commitment to a net-zero GHG world by 2050.[23] Against this test, the signals on the ground are quite mixed. On the positive side, thousands of companies have made net-zero emissions pledges in recent years – and significant effort is going into the innovation processes required to deliver deep decarbonization in almost every business sector with plans being drawn up for substantial investments in new technologies, transformed human resources, and more resilient supply chains. But the depth and breadth of the business world’s commitment to transformative change remains uncertain.[24] In fact, many of the executives, who declare themselves ready to transition to a sustainable energy future, hedge when pressed – indicating that their willingness to go forward depends on their competitors moving in parallel and not seizing a competitive advantage in the marketplace by ducking commitments to a net-zero future. This reaction makes it clear that the greatest threat to a just transition toward a clean energy future comes from the risk of what economists call free riders – companies or countries will not do their part to respond to the inescapably worldwide challenge of cutting GHG emissions to hold off the worst effects of climate change.
2.3.1 Disciplining Free Riders
Economic theory and practice are very clear on what results from free riding: defection from the commitment to action. Business leaders, faced with the prospect of competitors gaining market share and greater profitability by shirking emissions reduction obligations, fall back from their own commitments to transformative change.[25] And the policy structure framework quickly unravels in the face of this competitiveness dynamic.
Thus, the key to climate change progress is to keep the business community – across all countries, scales, and sectors – moving arm-in-arm toward net-zero GHG emissions by 2050. Of course, in our global economy of about $105 trillion/year, the top 1000 companies in the world generate about half of this annual value. So, these multinational companies must be put under particular pressure to adhere to the Glasgow Climate Pact targets and timetables.
2.3.2 New Ethical Foundations for all Economic Activity
To harness the power of enterprise as a force for sustainability, corporations must be held to a new ethical foundation that prohibits private gain at public expense.[26] Fundamentally, this means leaving behind the longstanding Friedman Doctrine[27] of shareholder primacy in favor of a new core principle of Stakeholder Responsibility that mandates a corporate duty of care toward employees, customers, suppliers, communities, and society as a whole. Of course, this ethical baseline is not really new. Indeed, the polluter pays principle has been recognized for years – and has been reiterated in dozens of international agreements.[28]
In advancing a foundational business principle forbidding spillovers of harm, the world community would also be building on the animating spirit of Pope Francis’s Laudato Si’ Papal Encyclical with its call for care for the Earth as our common home. And, of course, the idea of a duty of care to others and to Nature is common to all the world’s major religions. So, it is not unreasonable to insist that business follows the same golden rule of “do unto others as you would have them do unto you.” The shift of this norm into law has begun as corporate duty of care principles have been advanced in a number of jurisdictions in recent years – most notably, in the European Union.[29]
To address successfully the existential threat of climate change and the need for a just transition to a clean energy future, the world community must come together behind the principle that business models that depend on spillovers of harm for their success (or what economists would call uninternalized negative externalities) are no longer acceptable.[30] Going forward, all pollution up a smokestack or out an effluent pipe or releases of GHGs into the atmosphere would all need to be stopped or paid for in full. Simply put, while pollution may once have been seen as the inevitable price for industrialization and economic progress, this logic no longer holds. Inflicting harms on others must now be seen for what it is – an exercise of special interest privilege and an injustice that must not be allowed to continue.
2.3.3 Harnessing the International Trade System to Enforce Sustainability Standards
Having identified the need to undergird the economy of the 21st century going forward with a commitment to end uninternalized externalities (beginning with, but ultimately not limited to, GHG emissions), we must confront the risk that global efforts to advance this principle will be undermined by corporate free riders who seek marketplace advantage by evading this obligation. Thus, we must ask how best to enforce the no-spillovers-of-harm requirement.
In this regard, national regulations must play a role. And pressure from sustainability-minded investors might also provide an incentive for corporate care.[31] But these elements of discipline have long proven inadequate to the challenge of constraining free riding in the international marketplace. The one institution that has a track record of success in defining and implementing ground rules for traded goods (albeit an imperfect one that is now under threat from rising geopolitical tensions) is the World Trade Organization.
Launched in 1995 with a mandate to advance sustainable development,[32] the WTO could prove to be the key policy lever for implementing sustainability standards broadly and GHG emissions limits in particular.[33] But to fulfill this role, the WTO will need to be reinvigorated and its rules tightened. In this regard, the Villars Framework for a Sustainable Trade System,[34] spells out a reform agenda that would allow the international trade system to deliver on its sustainability mandate – and position the WTO to become the backbone of global efforts to hold the business community’s feet to the fire when it comes to climate change commitments.
2.4 Commitment to Equity as a Foundation for Climate Change Policy Legitimacy
As has been signaled through this article, good climate change policy must be underpinned by a commitment to equity. But what constitutes fairness in context of a just transition toward clean and renewable energy future has become highly contested. In this regard, a number of different dimensions of climate change justice can be identified. I highlight below seven such elements which should be considered, while recognizing that these competing visions of equity will sometimes in tension with each other.
2.4.1 Participation – Procedural Fairness
Simply put, the process of defining the pathway toward a transformed clean energy economy matters. Sometimes discussed as a question of inclusion or voice,[35] the opportunity to participate in policymaking has often been available only to those who are well-organized, politically connected, or economically advantaged. A just transition to a sustainable energy future cannot be achieved absent basic standards of procedural fairness that make broad participation in the process possible and give historically marginalized communities a chance to shape the policy framework and the priorities it reflects.
2.4.2 Protection of Low-Income Citizens and Communities
At the most basic level, a just transition requires attention to the needs and circumstances of the poor. Policies that help low-income nations, communities, and citizens (including the poor in wealthy countries) with the energy transition will be essential to climate change progress. Of particular concern is the fact that with GHG pricing emerging as a core policy priority, there is a risk that such strategies will burden economically disadvantaged people – unless accompanied by additional policy interventions that redress their regressive nature.[36] Beyond concerns about equity, the politics of advancing a clean energy agenda become much harder if the costs of the transition fall disproportionately on those who are least able to pay as developing nations and low-income communities are capable of exerting political influence that can either advance or derail the transformation efforts needed to secure a clean energy transition.
2.4.3 Transition Assistance for Old Economy Workers
Another critical point from a political and fairness perspective is the need to focus on the citizens whose livelihoods will be disrupted or destroyed by the shift from a fossil fuel past to a clean energy future. Transformative change often creates losers as well as winners. The process of moving forward will be much easier if support for those whose jobs and communities were tied to the Old Economy is taken seriously.[37] The challenge in this context is deepened by the reality that many coal miners, oil riggers, and natural gas pipefitters earned a very good living that they may find hard to replicate. The embedded expectations of these workers and their families presents a serious obstacle to change and their dim view of the future beyond fossil fuels may become a political rallying point.
2.4.4 Frontline Communities Bearing the Brunt of Climate Change Impacts
While the costs of taking action and shifting the energy foundation of the economy fall unevenly across society, so too do the costs of inaction. Coastal communities affected by rising sea levels – particularly those in low-lying cities or small-island developing nations – will need adaptation support. Likewise, farmers and agricultural regions facing changed rainfall patterns may need help in regearing their choice of crops and livestock as well as farming practices.[38]
2.4.5 International equity
Fairness across nations – sometimes discussed as a matter of burden sharing – represents another important consideration in developing strategies for a just transition. In this regard, several factors may play into what is considered equitable. Some observers would argue for a principle that wealthier nations should pay more than ones at the lower end of the development spectrum – reflecting an ability to pay principle.[39] Others would focus on the historic responsibility for past emissions – effectively creating a liability principle that would hold those who put more GHGs into the atmosphere accountable.
In the climate change context, there has been a great deal of discussion about the principle of common but differentiated responsibility across nations. But in too many circumstances, emphasis has been allowed to fall on the differentiation of action obligations, resulting in little progress being made as there is deep disagreement about what is fair. To overcome this potential obstacle to progress, we would do well to remember that the core vision of Pope Francis’s “On Care of our Common Home” centers on our commonality rather than our differences – and that all of us must contribute to a just transformation in line with our capacities.
2.4.6 Intergenerational Equity
Fairness to future generations and their need for a habitable planet requires special attention[40] – particularly as these future citizens of the Earth are not here to defend their own interests. Once again, we should recall the Pope’s moral logic in arguing for care for all creation present and future. In this regard, we must recognize the need for ramped-up efforts not just to limit the damage from climate change but also to stop the loss of our planet’s biodiversity, which has emerged as another existential threat to life on Earth.[41] This priority argues for a broad Nature Positive agenda and a commitment to fundamental change in our land use including a focus on regenerative agriculture and sustainable food systems – so as to leave our progeny a planet with fully functioning Earth Systems[42] and ecosystems that are as productive and diverse as the ones we inherited from prior generations.
2.4.7 Balancing across dimensions of sustainability
Finally, a just transition must balance the competing values and priorities that fall within the concept of sustainability. In this regard, we must be careful that climate change progress does not come at the expense of biodiversity loss or greater levels of air pollution[43] – nor at price of increased poverty or inequality. But while a broad view of what matters is required in constructing a successful response to climate change and a just transition, we must remember that the greatest inequity comes from inaction, which inevitably burdens the poor and those unable to assert themselves in policy debates – including future citizens and the world of Nature.
3. Conclusion
Advancing a just transition to a sustainable energy future at a speed and scale that responds to the threat of climate change presents a transformational challenge like few others that the human species has faced. It requires systemic change across all economic sectors and geographies and many realms of everyday life – with initiatives at the local, regional, state-provincial, national, and global scales.
Realigning the global economy with the Sustainability Imperative demands a multi-dimensional strategy[44] based on sound science, long-term thinking, and hard-nosed analysis backed by political leadership of the sort the world has rarely seen. Unprecedented policy creativity and cooperation across existing divides will also be needed to deliver the requisite shifts in behavior, commitment to new ways of doing business, and investments in an updated global energy infrastructure.
As Pope Francis has indicated, we must be willing to move beyond the “logic of self-interest and calculation”[45] and focus on our common cause of ensuring the ongoing vitality of life on Earth. Given the inescapably worldwide scale of the challenge, particular effort will need to be put into strengthened global governance through revitalization of the Bretton Woods institutions – that defines new roles and improved performance at the World Bank, IMF, and WTO.
Real success in delivering on the many vectors of this transformation agenda will not be easy, but the alternative is unthinkable.
*Thanks to all who participated in the May 2024 PAS-PASS joint symposium From Climate Crisis to Climate Resilience for the many insights presented – and to Kindall Hayes and Danielle Ellis for outstanding research assistance.
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[27] Friedman, M., & Snowden, P.N. (2002). Capitalism and freedom. University of Chicago Press.
[28] Esty, D.C. (2021). Should Humanity Have Standing? Securing Environmental Rights in the United States. S. Cal. L. Rev., 95, 1345.
[29] Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and Amending Directive (EU) 2019/1937, February 23, 2022, https://commission.europa.eu/business-economy-euro/doing-business-eu/sustainability-due-diligence-responsible-business/corporate-sustainability-due-diligence_en#documents
[30] Elliott, E. & Esty, D. (2021) The end externalities manifesto: A rights-based foundation for environmental law, New York University Environmental Law Journal, 29(1), 506-542. https://www.nyuelj.org/wp-content/uploads/2021/10/Elliott_Esty-Post-Proof.pdf
[31] Esty, D. & Cort, T. (2020) Introduction to values at work: Sustainable investing and ESG reporting. Palgrave Macmillan.
[32] Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, https://www.wto.org/english/docs_e/legal_e/04-wto_e.htm
[33] Esty, D.C. (2024) Sustainability policies complicate the WTO’s work–and make it more indispensable than ever. Fortune. https://fortune.com/2024/02/26/sustainability-policies-complicate-wto-work-trade-environment-politics/
[34] Trachtman et al. (2024) Villars Framework for a Sustainable Trade System (Policymakers summary). https://drive.google.com/file/d/1j_tpw-C6gOMu-g1IAlHBW6Vg_ZpQJKdD/view
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[36] Page, E.A. (2008). Distributing the burdens of climate change. Environmental Politics, 17(4), 556-575.
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[39] Anderson, B., Bernauer, T., & Balietti, S. (2017). Effects of fairness principles on willingness to pay for climate change mitigation. Climatic Change, 142, 447-461.
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[41] Schmitz, O.J. (2019). Sustaining Humans and Nature as One. In Esty, D.C. (Ed.), A Better Planet (pp. 11-19). Yale University Press.
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[44] For a sense of the range of elements required, see Esty, D.C., & Burke, I.C. (2019). A better planet: 40 big ideas for a sustainable future. Yale University Press.
[45] Mares, C. (2023, February 19) Pope Francis: God Asks Us to Love Beyond ‘the Logic of Self-Interest,’ to Love Like Christ. National Catholic Register. https://www.ncregister.com/