Harness the Co-Benefit and Avoid the Trade-off: The Complex Relationship between Income Inequality and Carbon Dioxide Emissions

Given the dual crises of climate change and rising economic inequality, it is imperative to improve the synergy between climate mitigation and income inequality reduction. Domestic income inequality is linked to nations' carbon dioxide (CO₂) emissions through multiple theorized pathways. Using a multidimensional framework, multiregional input–output analysis, panel regression analysis, and a sample of 34 high-income nations from 2004 to 2015, I investigate the relationships between nations' income inequality and four components of CO₂ emissions with distinct implications for climate change mitigation: (1) emissions generated by domestic-oriented supply chain activities; (2) emissions embodied in exports; (3) direct emissions from end-user activities; and (4) emissions embodied in imports. I theorize that income inequality is heterogeneously related to the four emission components via different pathways. Results show that the relationships vary across emission components, change over time, and differ between inequality measures. The Gini coefficient is generally less influential on CO₂ emissions than the income share of the top 10%. Notably, the income share of the top 10% is negatively related to direct end-user emissions from 2009 to 2011 and positively related to emissions in exports from 2011 to 2015, indicating variations in pathways both across emission components and over time—especially during and after the Great Recession. The findings underscore the multidimensionality in the income inequality-CO₂ emissions relationship. Whether reducing income inequality can generate the co-benefit of emission abatement while avoiding a potential trade-off is a context-specific question that requires careful policy design and implementation.