John Piper offers an interesting perspective in looking at the role of the law… what it can and cannot do:
First, then, what is it that the law could not do? The answer is given twice in Romans 8:1-4, once in verses 1-2 and once in verses 3-4. Verse 1 says, “There is no condemnation for those who are in Christ Jesus.” This is what we call justification – if we are in Christ Jesus – that is, if we are united to Jesus by faith in him – our condemnation from God because of our sin is taken away. God acquits us. Counts us righteous. Justifies us. He does not look upon us any longer as guilty and condemned, but as forgiven and righteous because of what Jesus did for us.
Then comes verse 2: “For the law of the Spirit of life in Christ Jesus has set you free from the law of sin and of death.” This is what we call sanctification. After we are justified, and because we are justified, the Spirit of God is poured out in our lives and begins to free us from the dominion of sin and death. This means that Christians are not only “counted” righteous in justification, but actually transformed by the Spirit of God into more and more actually righteous, loving, holy people. This is the practical evidence that we have trusted Christ and are united to him and are justified in him.
Now my answer to our question is that these two things are what the law could not do. The law could not justify us and the law could not sanctify us. It was powerless to do both of these things. The first sign of this is that verse 3 begins with “for.” You could read it like this: Justification is “in Christ” (verse 1), and sanctification is “in Christ” (verse 2), for the law could not do these things, only Christ could, and so God sent his Son in the likeness of sinful flesh. That’s the first answer to the question from verses 1 and 2. Justification and sanctification come to us by union with Christ Jesus (“in Christ”) for the law could not make them happen.
Now the same answer comes in verses 3 and 4 as well. Verse 3 says that what the law could not do is condemn sin in the flesh, that is, it could not deal with sin, absorb its punishment, remove our condemnation. So God did this by sending Jesus into the world to die for us: “For what the Law could not do, weak as it was through the flesh, God did: sending His own Son in the likeness of sinful flesh and as an offering for sin, He condemned sin in the flesh.” So here we have the same point as verse 1: There is no condemnation because God executed the condemnation for our sin on his Son. That is the basis of our justification. That is what the law could not do. It could not remove the condemnation for our sin. It could identify it and name it and point away from it and stir it up and rub it in. But it could not remove our punishment. God did that in Jesus’ death. So again we see that justification is something the law could not do.
Now verse 4, like verse 2, says that this justification leads to sanctification, which was also something the law could not do – since it could not justify us. Notice verse 4 begins with “so that.” This is a purpose of God’s condemning sin in the flesh. God put our condemnation on Jesus and provided the basis for our justification “so that the requirement of the Law might be fulfilled in us, who do not walk according to the flesh but according to the Spirit.” Walking according to the Spirit is what we mean by sanctification. So what we see here again, as in verses 1 and 2, is that sanctification is the result or the effect of justification. And that means that both justification and sanctification are what the law could not do.
You can see it most easily if you just say verses 3 and 4 like this: What the law could not do God did, namely two things: he condemned sin by sending his Son to die for us, and because of this basis for justification he enables us to fulfill the essence of the law by giving us the Holy Spirit. That is what the law could not do: justify us and sanctify us. It could not remove our condemnation or bring about our transformation. And yet both of these are absolutely necessary if we are going to be saved in the last day and have eternal life. [http://www.desiringgod.org/ResourceLibrary/Sermons/ByDate/2001/71_What_the_Law_Could_Not_Do_God_Did_Sending_Christ_Part_2/]
In all of this, it is perhaps instructive to remember that the mercy seat was the covering for the law – that is, mercy always covered the law.
What is perhaps even more important is this effective transformation of which Piper speaks, for if your accepting Jesus Christ as your personal savior has not resulted in a transformed life, you might want to take a closer look at whether it was actually Jesus you accepted. So what is the result? Micah 6:8 makes it clear what it is the Lord requires of us, one component of which is to “love mercy.” It is not simply to show mercy, but to love it. This is a challenge for a people that finds it hard to forgive – and not only others, but ourselves. This is the transformation, though – that of reflecting the character of our heavenly Father through the power of the indwelling Spirit. It is He that loves mercy so much that He sent His Son. It is only through reflecting on Him that we, too, can love mercy – extending it to ourselves and neighbors alike, recognizing that we have all sinned and fall short of the glory of God. There is no use in looking around at others and creating a false hierarchy of sins that we might feel better about ourselves. If we are looking at others, let it be through our Father’s eyes, that we might extend a hand of mercy and help others grab hold of that same grace that has been extended us!