The editorials of the Wall Street Journal are often very good and economically literate. Not so much this one, whether one agrees or not with its conclusions: “Taylor Swift’s Carbon Allowance” (January 16, 2024). It criticizes carbon-offset markets, which offer the very rich (such as Taylor Swift) and large corporations a way to buy virtue. The offsets do not necessarily offset anything because the activity they represent (not cutting trees to offset carbon spitting from a private plane, for example) may not have been carried out anyway.

The problem is that the editorialists use arguments that economists have proven invalid a couple of centuries ago. Consider this one:

But unlike, say, oil, carbon allowances don’t inherently possess an economic value.

“Inherent economic value” is a meaningless expression in economic analysis. Value comes from supply and demand. Anything (1) demanded by somebody willing to pay a price that covers at least its cost, and (2) whose production requires the use of scarce resources that have a value because they can serve to produce something else—any such stuff, material or not, has an economic value. The fact that something is freely exchanged for money on a market proves that it has a value, and it has nothing to do with any “inherent value.”

This is true for bubble gum, Picasso paintings, bitcoins, and the services of fortune tellers. Oil has value only because some people are willing to pay for it and suppliers use resources that could have been used to produce something else of value. If no consumer wanted anything made with oil, its “inherent” value would fall to zero.

Ignorance of these elementary economic truths can lead to other errors—for example:

[Allowance] credits generated from not logging can be even more profitable than timber sales.

What is that supposed to prove? Innumerable examples exist of higher prices and profits generated from not producing something else, a simple consequence of economic scarcity. A resource has a price precisely because it has alternative uses and one use prevents another. Hunters or even tree huggers (tree huggers are people, too) who buy a piece of forest land generate utility (that is, what they prefer to do with their money) for themselves and, for the land seller, something “even more profitable than timber sales.” There is nothing wrong with private environmental associations buying land with private money (see my “Producing Public Goods Privately,” Regulation, Fall 2012). Mortgages generated from building houses instead of planting something on the land can even be more profitable than potato sales. And so forth.

I am agnostic as to whether carbon offsets do anything good for the future of mankind (or humor). But, to the extent that the allowances are not purchased or sold under government coercion or threat thereof, pieces of paper that certify whatever and have a market price must respond to a demand from users (say, Taylor Swift) at a price at which suppliers are willing to produce them, even they only certify some presumed virtue. If somebody wants to buy holy water at a price a supplier is happy to accept, let him or her do it. Laissez faire!

Perhaps, as the WSJ editorialists suggest, carbon offsets or some of them are a scam, but the people who buy them are presumably adults. If the scam originates in the intervention or participation of governments or in some other form of coercion or obvious fraud, this and not something else is what needs to be criticized and with valid economic arguments.

If a cause needs a nonsensical economic argument, it is not a good cause. But why not throw another argument in the balance in case it’s the one that sticks? Well, rational analysis in the search for the truth does not work that way (although the shock of bona fide arguments is useful). I am reminded of an old joke: A guy is sued by his neighbor for returning with a big hole a beer mug he had borrowed. “Your Honor,” the defendant’s lawyer tells the Court, “our case rests on three facts. First, my client never borrowed the mug. Second, when he borrowed it, the hole was already there. Third, he returned it in perfect condition.”