1Gen 3:15; Isa 42:6; Jn 6:27; ²1 Jn 5:11–12; ³Jn 3:16; 1:12; ⁴Prov 1:23; ⁵2 Cor 4:13;
⁶Gal 5:22–23; ⁷Ezk 36:27; ⁸Jas 2:18, 22; ⁹2 Cor 5:14–15; ¹⁰Eph 2:10.

The Covenant of Grace is known as the second covenant in our catechism because it was manifested to man after man fell under the first covenant. But it is, as it relates to man in general, of a totally different nature from the first covenant. Yes, the condition of the covenant is the same in that the Covenant of Grace builds upon the Covenant of Works, and Christ came as the second Adam to fulfil what the first Adam failed to do. But under the first covenant all men descending from Adam by natural generation are automatically members of the covenant by descent, whereas membership in the second covenant is by God’s sovereign election, which does not at all depend upon what the members (i.e. the elect) does or does not do. This alone makes the second covenant gracious.

But the graciousness of God towards the elect in this second covenant is further manifested in three ways.

First, God offers and provide a Mediator to the elect to reconcile them to Himself. Grace is unmerited favour. But the grace of God is more than that. The grace is God is His extension of favour and love to creatures who are not only undeserving of his favour, but in fact deserving His wrath and curse. The elect, as with all men descending from Adam by natural generation fell and sinned in Adam, and therefore are estranged from God and become His enemies. But God by His grace provides for their restoration, for by this Mediator, we who deserve God’s wrath and curse, are instead given life eternal, free and abundant: "And this is the record," says the apostle John, "that God hath given to us eternal life, and this life is in his Son. He that hath the Son hath life; and he that hath not the Son of God hath not life" (1 Jn 5:11-12).

Secondly, God’s grace is manifested in his promising and giving His Holy Spirit to all His elect. Note the words of our catechism carefully. What it is saying is that as God requires faith in the elect in order that they may enjoy the benefits procured by Christ, He gives the elect the Holy Spirit to work faith (as well as all other saving graces, such as repentance and sanctification, and other aspects of the fruit of the Spirit—Gal 5:22-23) in them.

Take note of this thought carefully. Because our enjoyment of the benefits of this second covenant requires faith on our part, faith is often said to be a condition of the covenant of grace. But strictly speaking faith is not the condition of the covenant. It is a gift procured by Christ our covenant head for the elect, by which the elect is brought into a lively union with Him, and therefore begin to enjoy the benefits of His mediatorship. It is, in other words, the instrumental condition (not of the covenant, strictly speaking), but of interest and union with Christ.

Thirdly, God’s grace in the covenant is manifested in His enabling his elect to live a life of freedom, holiness and good works. All men by nature are bound to sin or lawlessness. God by his grace sets the elect free so that they are able to live in obedience to His "perfect law of liberty" (Jas 1:25). This, He does by changing in their heart by regeneration and the indwelling of the Spirit (Ezk 36:26-27).

This ability to live holy lives in turn gives us the blessed assurance that God has begun a good work in us and that our faith is real (Jas 2:18, 22). And this in turn, bestirs gratitude in our hearts so that the Christian life is lived in love rather than in fear, and in joy rather than in burden. Yes, the way of holiness and good works is the way to salvation, which God has appointed for the elect (Eph 2:10). But the elect in no way merit salvation by their good works, for even their good works proceed from God’s Spirit (cf. WCF 16.5) as a manifestation of God’s grace in the second covenant!