Inequality and the adoption of climate mitigation policies

The objective of this study is to analyze how inequality affects the demand for emission reduction policies. It is generally recognized that a more equal income distribution can improve environmental quality (IPCC, 2022) influencing several mechanisms, such as the value placed on environmental public goods, the influence of social norms or the cost-benefit distribution of environmental protection. However, the focus so far has been on outputs (i.e., pollution concentration), disregarding the fact that a major component in determining the impact on the environment is the demand for – and implementation of – policies, which are the tools to actually define emission caps or incentivize green technologies.

To fill this gap, we explicitly focus on the relationship between inequality and environmental policies. Our leading research question is: how does the distribution of income affect the demand of emission reduction policies?

Our analysis covers national mitigation-related policies implemented in G20 countries between 1997 and 2021. We use the Climate Policy Database (Nascimento et al., 2022) to create indicators of policy adoption. In line with the policy density approach, we use the count of mitigation policies adopted annually by each country as dependent variable, and consider it as an approximation of climate policy demand.

To capture different aspects of income distribution, we adopt different inequality measures (WID, 2022). We consider the national income shares of specific parts of the population (Top 10%, Bottom 10%, Bottom 40%) as well as commonly used inequality indices (Gini index and Palma ratio). We also construct a composite index, which combines the Gini with the ratio of the income shares held by the top and bottom 10% (Sitthiyot & Holasut 2022). We interact our inequality indicators with GDP per capita (PPP), as we assume that the impact of inequality may differ according to the national income level.

Given the count data nature of our dependent variable, our empirical strategy is based on a fixed-effects Poisson regression model. We control for several institutional and policy-relevant variables.

Our results show that the impact of inequality on climate policy implementation depends on the country's average income level. While in wealthy countries a reduction of inequality leads to a lower number of mitigation policies, in poorer countries an increase in inequality may drive the adoption of new policies. At the same time, the effect of economic growth is also not straightforward: an increase in average income has a positive impact on policy adoption in low-inequality societies. Conversely, an average income increase has a negative impact on climate mitigation adoption in highly unequal societies.

Our findings confirm that inequality plays a key role in the adoption of national mitigation policies. These results, which are robust across multiple specifications of inequality indicators, highlight the importance of advancing knowledge on how equity and environmental challenges interact in order to get full support and progress with the climate agenda. Our results aim to inform the current policy debate on potential trade-offs between climate and equity by presenting new evidence on the interconnections between social and environmental goals.