Over at the Thomas Goodwin blog, Mark has an entry arguing that the covenant of works is essential to confessional Reformed orthodoxy and to a fully orbed covenant theology. I couldn't agree more. There are several reasons that the covenant of works is important.
1. It clarifies that the most basic relationship between God and his created image bearers is one of works and strict justice. Perfect holiness was legally necessary for Adam to continue in fellowship with God and for Adam to receive the future blessing of eschatological life. Without the requirement of perfect holiness for life, it would not be clear why Adam's sin (de)merited divine judgment and death. The fact that God delights only in perfect holiness and abhors any and all impurity upholds divine justice and is the basis of the gospel.
2. Without the covenant of works in its classical formulation, both Christ's negative and positive obedience in the covenant of redemption become unnecessary. If the strict justice of the covenant of works didn't require Adam to be perfectly holy for eschatological life and make the death penalty legally necessary for sin, then Christ would not have had to fulfill all righteousness or die on the cross to redeem his people. The redemptive work of Christ would not be a legal/judicial necessity at all, but something like a Grotian governmental/rectoral expedient designed to show that God takes sin seriously.
3. Without the work-for-life/sin-for-death principle in the covenant of works, all imputation is unnecessary for our justification. If Adam's single sin didn't necessarily demerit his condemnation, then there is no need for our sins to be literally imputed to Christ on the cross for our justification. And, if Adam didn't have to work for life in the covenant of works, then why should Christ's righteous works in the covenant of redemption have to be imputed to us for our eschatological life in justification? Put differently, if death isn't the legally necessary penalty for sin and if life isn't the legally necessary reward for perfect obedience, then we don't actually need any of Christ's substitutionary work to be justified. God may justly choose to forgive our sins and declare us righteous, to justify us, without a substitute at all.
The covenant of works, legal substitution in the covenant of redemption, and justification on the ground of Christ's righteousness alone by faith alone all stand or fall together.