Can inequality reduction decrease carbon emissions in China? A counterfactual analysis

The relationship between the two sustainable development goals (SDGs)–inequality reduction and carbon emission reduction is critical for governments formulating and implementing environmental and redistribution policies. This study uses micro survey data from the China Family Panel Studies (CFPS) to conduct a counterfactual analysis that decomposes and quantifies the net effects of consumption growth, redistribution, and changing patterns of consumption on household carbon emissions. The counterfactual approach helps to overcome the endogeneity concerns. The findings of our study convey a profoundly important and alarming message: the redistribution measures for inequality reduction may increase household carbon emissions. The findings attest to the need for Chinese policymakers to seriously consider the trade-off between inequality reduction and emission reduction, particularly in certain regions in China. To address the trade-off, one key measure is to encourage low-carbon lifestyles and consumption patterns to ensure that the benefits gained by poorer households from redistribution measures will not translate into higher emissions.