Research articleThe complementarity of income equalization and innovation for more effective emission reduction
Introduction
In the past 50 years, the world has witnessed a dramatic increase in greenhouse gases. As a major cause of global warming, greenhouse gases constitute a catastrophic threat to sustainable economic growth and the lives of human beings (IPCC, 2018). Since carbon dioxide (CO2) is a leading source of greenhouse gases, this threat has put countries under high pressure to lower CO2 emissions. Despite a series of multilateral agreements and collaborative efforts among countries to curb global CO2 emissions, such as the United Nations Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol, and the Paris Agreement, it is reported that total greenhouse gases have consistently grown by 1.5 per cent per year (IPCC, 2018). In fact, the literature also suggests a number of strategies to either manage or lower carbon emissions, such as developing a low-carbon finance index (Mohsin et al., 2020), raising financial inclusion (Le et al., 2020), adopting a carbon emissions transfer scheme (Sun et al., 2020a,b), and encouraging technological innovation (Yang et al., 2014). However, most countries face difficulties with designing a comprehensive and effective emissions reduction plan. One important reason for this may be the fact that, apart from targeting CO2 emissions reduction, a country still needs to achieve socioeconomic objectives such as growth, poverty reduction, and income equality. In addition, economic, social, and environmental targets are not always harmonized with each other due to their complicated interrelationships.
A crucial line of research examines the environmental impacts of social and economic factors. With regard to the role of income inequality, there is no consensus in theoretical viewpoints or empirical evidence. Specifically, income inequality, an unsettled social problem, is believed to negatively affect environmental quality, with a political economic explanation (Boyce, 1994, 2008; Laurent, 2015). Meanwhile, the positive linkage between the two constructs is supported by the “marginal propensity to emit” perspective (Ravallion et al., 2000; Borghesi, 2006). Empirical findings regarding this relationship vary across countries for several reasons, including economic and social characteristics (Gassebner et al., 2008; Ibrahim and Law, 2016; Grunewald et al., 2017). On the other hand, the impact of technological innovation, a crucial driver of economic development, on CO2 emissions has attracted wide interest among both academics and practitioners (Yang et al., 2014). Technological innovation had been mostly believed to result in the reduction of CO2 emissions by improving energy usage efficiency and introducing eco-friendly products until its rebound effects on increased energy consumption take place (Lin and Liu, 2012).
The mixed empirical findings about either the inequality-environment or the innovation-environment nexus further raise a critical question about whether the effect of either income inequality or innovation on environmental quality is conditional on other factors (Zhang et al., 2017; Sarr and Noailly, 2017; Wang et al., 2017; Yu and Du, 2019). In fact, previous studies mostly examine the effect of either income inequality or innovation on environmental quality separately; however, a country may pursue technological progress and income equalization simultaneously. In this research, we aim to not only reach a conclusion about the direct impacts of inequality and innovation on environmental degradation but also to examine how these two strategies may interact with each other in influencing environmental quality when they are conducted simultaneously. Specifically, this study will answer three primary questions: (1) Do income inequality and innovation directly impact environmental quality? and if so, how? (2) Does income inequality moderate the impact of innovation on environmental quality, and if so, how? and (3) Does innovation moderate the impact of income inequality on environmental quality, and if so, how?
This study employs the system generalized method of moments (GMM) for a panel data set of 91 countries from 1971 to 2015 published by the World Bank. The findings indicate that the beneficial impacts of income equality on environmental quality can only be achieved at a high level of innovation. Likewise, innovation is an effective tool to reduce environmental degradation only when the equitable income distribution condition is satisfied.
This research contributes to the literature in two ways. Firstly, we shed light on the mixed empirical evidence regarding the direct impacts of inequality and innovation on the environment by examining how each factor could influence the effect of the other on environmental quality. This paper presents the first empirical research on the moderating effect of income inequality and innovation on environmental quality on a global scale. Second, this study answers a critical question regarding whether economic, social, and environmental targets can be unified for sustainable development. While the government could use innovation as an effective tool to mitigate the undesirable impact of income distribution on environmental quality, maintaining relatively fair income distribution can ultimately help a country to reap the benefits of innovation. Developing a cleaner, more equal and innovative society forms a win-win solution rather than a trade-off as claimed in previous studies (Ravallion et al., 2000; Gillingham et al., 2016; Liu et al., 2019; Sager, 2019). This study, therefore, provides important evidence to support policymakers in achieving sustainable development.
The remainder of this paper is organized as follows. Section 2 provides a literature review. Section 3 presents the data and methodology in detail. Section 4 reports and discusses the results. Section 5 covers the conclusion and policy implications.
Section snippets
Income inequality and environmental quality
Various models and theories confirm that the equal distribution of wealth or disposable income is necessary for economic growth. Based on the endogenous fertility model, since most families need to trade between the quantity and education of their children (Becker and Barro, 1988), poor parents are more inclined to have many children to increase family income while richer families tend to have less due to the high opportunity costs of raising children. As a result, income inequality further
Model specification
This study examines the relationship between environmental quality, income inequality, and innovation by employing an extended version of the STIPART model (stochastic impacts by regression on pollution, affluence, and technology). We use CO2 emissions, which stem from the burning of fossil fuels and the manufacture of cement, to proxy for environmental degradation. The Gini pre-tax and pre-transfer represents the income inequality of a country. To measure innovation, we employ total patent
Results
This section presents and discusses the empirical findings of the study. The first part reports and explains the main results. The second part performs several robustness tests.
Conclusions and policy recommendations
The results can be summarized as follows. This research's findings partially support the negative effect of income inequality on environmental quality, as featured in the political economic explanation and Veblen effects (Boyce, 2008; Cushing et al., 2015; Laurent, 2015; Schor, 1998; Veblen, 1934) and affirmed in mounting empirical evidences (Baek and Gweisah, 2013; Kasuga and Takaya, 2017; Liu et al., 2019; Uzar and Eyuboglu, 2019). Similarly, in line with the IPAT model (Ehrlich and Holdren,
Credit author statement
Lan Khanh Chu: Conceptualization, Methodology, Data curation. Dung Phuong Hoang: Writing- Reviewing and Editing.
Declaration of competing interest
The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.
References (70)
- et al.
Does income inequality harm the environment?: empirical evidence from the United States
Energy Pol.
(2013) - et al.
Initial conditions and moment restrictions in dynamic panel data models
J. Econom.
(1998) Inequality as a cause of environmental degradation
Ecol. Econ.
(1994)- et al.
Analyzing impact factors of CO2 emissions using the STIRPAT model
Environ. Impact Assess. Rev.
(2006) - et al.
Innovation complementarity and environmental productivity effects: reality or delusion? Evidence from the EU
Ecol. Econ.
(2014) - et al.
The trade-off between income inequality and carbon dioxide emissions
Ecol. Econ.
(2017) - et al.
Energy technological progress, energy consumption, and CO2 emissions: empirical evidence from China
J. Clean. Prod.
(2019) - et al.
Technological innovation, energy efficient design and the rebound effect
Technovation
(2007) - et al.
Does inequality affect environmental quality? Evidence from major Japanese cities
J. Clean. Prod.
(2017) - et al.
Could working less reduce pressures on the environment? A cross-national panel analysis of OECD countries
Glob. Environ. Change
(2013)
Energy price-induced and exogenous technological change: assessing the economic and environmental outcomes
Resour. Energy Econ.
Does Financial Inclusion Impact CO2 Emissions? Evidence from Asia
Dilemma between economic development and energy conservation: energy rebound effect in China
Energy
Examining the effects of income inequality on CO2 emissions: evidence from non-spatial and spatial perspectives
Appl. Energy
Rebound effect in Chinese household energy efficiency and solution for mitigating it
Energy
The impact of technology-push and demand-pull policies on technical change – does the locus of policies matter
Res. Pol.
Income inequality and carbon consumption: evidence from Environmental Engel curves
Energy Econ.
Political and economic inequality and the environment
Ecol. Econ.
Carbon emission transfer strategies in supply chain with lag time of emission reduction technologies and low-carbon preference of consumers
J. Clean. Prod.
The nexus between income inequality and CO2 emissions in Turkey
J. Clean. Prod.
Income inequality and the development of environmental technologies
Ecol. Econ.
Examining the driving factors of energy related carbon emissions using the extended STIRPAT model based on IPAT identity in Xinjiang
Renew. Sustain. Energy Rev.
A finite sample correction for the variance of linear efficient two-step GMM estimators
J. Econom.
Industrial CO2 intensity, indigenous innovation and RD spillovers in China's provinces
Appl. Energy
STIRPAT, IPAT and ImPACT: analytic tools for unpacking the driving forces of environmental impacts
Ecol. Econ.
Impact of technological innovation on CO2 emissions and emissions trend prediction on ‘New Normal’ economy in China
Atmos. Pollut. Res.
Analyzing the impact factors of energy-related CO2 emissions in China: what can spatial panel regressions tell us?
J. Clean. Prod.
The role of environmental innovation through the technological proximity in the implementation of the sustainable development
Bus. Strat. Environ.
Political instability and economic growth
J. Econ. Growth
Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations
Rev. Econ. Stud.
Will income inequality influence the abatement effect of renewable energy technological innovation on carbon dioxide emissions?
J. Environ. Manag.
A reformulation of the economic theory of fertility
Q. J. Econ.
Income inequality and the environmental Kuznets curve
Emulation, inequality, and work hours: was thorsten veblen right?
Econ. J.
Is inequality bad for the environment?
Res. Soc. Probl. Publ. Pol.
Cited by (13)
The interaction of public–private partnership investment in energy and geopolitical risk in influencing carbon dioxide emissions in E7 countries
2024, Environment, Development and SustainabilityEnvironmental innovations and energy security: novel insights from the European region
2023, Clean Technologies and Environmental PolicyThe interaction of income inequality and urbanization in affecting environmental quality: International evidence
2023, Australasian Journal of Environmental Management