Tradeoff between Inequality Reduction and Carbon Emission Reduction in China

Abstract

Global inequality and climate change are two of the most pressing policy issues of our time. China, one of the 170 signatories to the Paris Agreement, has targeted a CO2 emission peak in 2030. With such a carbon-constrained future, China faces the urgent dual tasks of reducing inequality and achieving mitigation goals. The question about the compatibility of reducing inequality while simultaneously achieving mitigation goals remains. Due to the micro-level data limitation, few studies have satisfactorily answered the question. Furthermore, little is known about the role of redistribution policies in mitigation process.

Focusing on the household carbon footprints in China, this study uses a national representative survey data on household economic well-being in China and combine the strengths of regression and counterfactual approach to answer the question. It examines the inequality-emission nexus based on the three different measures of inequality: income, consumption, and wealth inequality, thus providing a full picture of the formation of household emission behavior and its response to changes in economic well-being in Chinese society. The empirical findings of this study make an interpretation which differs from current literature: the redistribution policies can help achieve a win-win outcome of equity and environment. The thesis makes the following three points. First, there is trade-off between income inequality reduction and carbon emission reduction. Income redistribution policies aiming for reducing inequality may cause the unintended outcome of higher carbon emissions. Second, the marginal propensity to consume (MPC) evidently plays a key role as the transmission channel from income redistribution to household emission behaviors. If the MPC has an inverted-U shape relationship with income level, income redistribution will expand consumption demand and thus lead to more carbon emissions. The household-level evidence of China is consistent with this law of MPC. Third, containing wealth or housing inequality helps to reduce household carbon emissions. As a permanent form of household income, wealth is a more crucial factor than current disposable income, when measuring inequality and considering household long-term emissions trajectory. The high sensitivity of Chinese households’ emission to housing appreciation supports the feasibility of using policies for reducing housing or wealth inequality as a potential solution beyond income redistribution for achieving a win-win outcome of equity and environment. In sum, this thesis fills the data deficiency in China’s household-level carbon footprint study, enriches the emission theory by explaining the formation of household emission patterns in China, and contributes to the literature on economy-environment nexus by revealing the causality between economic well-being inequality and carbon emissions from income, consumption, and wealth dimensions using counterfactual analysis as a main research strategy.

Date of Award	28 Jun 2023
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Xiaoling ZHANG (Supervisor), Bo WEN (Supervisor) & Hon S Chan (External Co-Supervisor)