Global inequality has been falling in the last 20 or 30 years, mainly because of rising incomes in China, India, and, more recently, also in Africa. That has been good for global justice and poverty reduction, but not for greenhouse gas emissions. Indeed, the majority of growth in emissions since 1990 has taken place in emerging countries. As a result, if global inequality continues to fall, we have to confront the fact that greenhouse gas emissions will continue to rise. There is no easy solution to this problem, since it is very difficult for emerging countries to drastically change their emission pathways. But there are some policies that might help, including, for example, the removal of energy subsidies and a greater focus on air pollution and energy security, both of which are co-benefits of moving away from fossil energy. The question also remains whether more unequal countries emit more or less greenhouse gases. Theoretical arguments in this regard are ambiguous. We find that in poorer countries, higher inequality actually reduces per capita emissions, mainly because it pushes poor people out of the carbon economy and forces them to lead carbon-neutral lives, relying entirely on biomass. However, in richer countries, inequality is associated with rising emissions. Therefore, if we reduce inequality in rich countries, we will also help reduce emissions. But how to think about climate policy? Economists have very much focused on the idea that there is a first best climate policy with a global carbon price, achieved either through an emission trading scheme or a carbon tax. But one should realize that climate policy in practice involves many different initiatives at many different levels. The driving forces of such policies are often the co-benefits such as cleaner air or greater energy security than emission reduction. If we recognize this, then our analysis should focus not on trying to design first best, but unrealistic policies, but rather on studying the interactions between existing policies and on trying to improve their functioning. This will be a much more promising way to tackle climate change than focusing on an unrealistic first best option.
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