Say an investor had only two options of what to put money in: gold or stocks. Gold has an average annual rate of return of 3 percent, while the stock market delivers a healthier 5 percent. Which should the investor choose? Seems simple, right? Take the higher payout.

But annual averages can be deceiving. In fact, these two have very different risk profiles over time. Stocks tend to pay off steadily in good times when the economy is growing and we are relatively flush, but to decline in bad times. Gold might pay off next to nothing for years at a time and present real opportunity costs, but it delivers handsomely during unexpected economic crises.

Investing in gold is a type of insurance policy against tough times. Financial markets are revealing that investors are willing to accept a lower average return for that insurance, precisely because it helps to manage risk.

Last week, President Trump signed an executive order about climate change that runs counter to this insight from financial markets. The headlines rightly highlighted the dismantling of climate policies like the Clean Power Plan. But buried in the details is an administrative tweak to the most important climate measurement in the federal government’s climate toolbox: the social cost of carbon…

Areas of Focus: Climate Change
Definition
Climate Change
Climate change is an urgent global challenge. EPIC research is helping to assess its impacts, quantify its costs, and identify an efficient set of policies to reduce emissions and adapt...
Climate Economics
Definition
Climate Economics
Climate change will affect every sector of the economy, both locally and globally. EPIC research is quantifying these effects to help guide policymakers, businesses, and individuals working to mitigate and...
Climate Law & Policy
Definition
Climate Law & Policy
As countries around the world implement policies to confront climate change, EPIC research is calculating which policies will have the most impact for the least cost.
Social Cost of Carbon
Definition
Social Cost of Carbon
The social cost of carbon is an essential tool for incorporating the cost of climate change into policy-making, corporate planning and investment decisionmaking in the United States and around the...