Exploring the trade-offs between carbon emissions- income inequality- and poverty: A theoretical and empirical framework

Abstract

This study investigates the relationship between income inequality poverty and carbon emissions using a balanced panel dataset of 83 countries from 1990 to 2020. Employing panel quantile regression which provides insights into distributional heterogeneity the research analyzes both consumption-based and production-based CO2 emissions through the lens of classical economic theories including Keynes' Absolute Income Hypothesis and Duesenberry's Relative Income Hypothesis. The findings challenge the Environmental Kuznets Curve (EKC) hypothesis as income increases consistently lead to higher emissions across all quantiles regardless of income level. Notably reducing income inequality in high-income countries lowers consumption-based emissions though it may increase production-based emissions highlighting the need for degrowth policies. In contrast for lower- and upper-middle-income countries reducing inequality tends to increase both consumption- and production-based emissions illustrating the complex relationship between income levels and emissions. Povertyrelated factors such as household consumption and animal protein intake positively affect emissions while vegetable protein intake reduces them aligning with the principles of Doughnut Economics and the circular economy. Renewable energy usage consistently reduces emissions across all income groups and quantiles while daily caloric supply reduces emissions only in high-income countries but contributes to increased emissions in low lower-middle and upper-middle-income countries. Policymakers should prioritize reducing consumptionbased emissions in high-income countries through income redistribution while ensuring that poverty alleviation in lower-income nations is pursued sustainably to balance emissions and equity.