Canada faces deepening socioeconomic inequality and mounting pressure to decarbonize.
On the one hand, the latest Statistics Canada report shows that the income gap between the richest and poorest 40 per cent of households has continued to widen in 2025. For the lowest income households, rising consumption expenses due to inflation has outpaced wage growth, pushing many further into debt. Meanwhile, the wealthiest households have seen above-average gains in both income and investment earnings. As it become increasingly difficult for a growing number of Canadians to make ends meet, income and wealth continue to concentrate at the top.
On the other hand, Canada’s pace of greenhouse gas emissions reduction is far from sufficient to meet its climate targets. Since 2020, national emissions have oscillated between 681 and 696 megatonnes of CO2 equivalent per year; a far cry from the federal government’s commitment to reach between 343 and 382 megatonnes by 2035, let alone full decarbonization. As extreme weather events driven by climate change already affects communities across the country, insufficient climate action carries a mounting human cost.
While these debates are typically treated as separate policy challenges, our new research shows they are not. In an analysis of the social factors of the climate crisis, it is clear that concentrating income at the top accelerates emissions, while broader income distribution reduces them.
This reframes affordability and climate action as complementary rather than competing goals. Understanding this relationship is essential for guiding public policy. Redistributive policies are not a distraction from climate action, but part of the solution.
Linking disposable income shares with carbon emissions
We analyzed how disposable income distribution has affected carbon emissions across Canadian provinces from 1999 to 2023. Disposable income refers to the money a household retains after taxes and government transfers. Using emissions data from Canada’s Official Greenhouse Gas Inventory and Statistics Canada’s income data, we examined how shifts in income distribution affect provincial emissions, while controlling for total population, GDP per capita, and energy intensity.
In a previous study, we found a significant relationship between the income concentration of Canada’s top five and 10 per cent with provincial gas emissions. This time, we turned our attention to the lower quintiles of disposable income. We modeled the short- and long-term effects of a one per cent increase in the share of disposable income of five groups: the highest household quintile, the four lowest quintiles, the three lowest, two lowest, and the lowest quintile alone.
Higher disposable income shares for the richest quintile drive emissions up. However, higher shares for the bottom four quintiles drive them down, and this relationship is asymmetrical at the top. In other words, a reduction in the highest quintile’s income share produces a larger drop in emissions than an equivalent increase produces in additional emissions. As such, redistributing income would thus simultaneously reduce inequality and cut carbon emissions.
As an example, the table below shows what a one per cent increase in the share of disposable income of the different quintile groups would have meant for national carbon emissions in 2023, and the long-term impact of such an increase over 20 years. We express these effects in kilotonnes (kt) of CO2 equivalent and in a corresponding number of combustion engine vehicles added to or removed from Canadian roads.
Our findings indicate that a redistribution of income would lead to important reductions in carbon emissions, all while drastically improving the lives of Canadians. While our study does not identify a single mechanism driving this relationship, the most plausible explanations are that higher disposable income allows lower-income household to shift toward better quality, more locally sourced, or more environmentally friendly goods and services. Alternatively, the consumption patterns of lower income groups may be simply less emissions-intensive than those of the wealthiest, even if the former were to increase. Further research is needed to understand the drivers of this relationship.
Our findings also underscore the importance of measuring income inequality through more precise instruments than the commonly used Gini coefficient. Because the Gini coefficient captures overall distributional spread, it can show improvement even when the top-end income concentration remains unchanged, which is precisely the dynamic our research identifies as a key driver of emissions. Disposable income shares by quintile better isolate where in the distribution the climate-relevant dynamics actually occur.
The climate and affordability crises go hand in hand
Concerns over inflation and cost of living have become defining issues across Canada. Yet, Canadians have not abandoned their interest for the environment. A recent national survey conducted by Re.Climate found that three quarters are concerned about the climate crisis and its effects on current and future generations, while 65% of them want political leaders to take stronger climate action.
Our research suggests these priorities do not need to compete. Improving affordability can, in fact, contribute to reducing greenhouse gas emissions. Redistributive fiscal policies are not a distraction from climate ambition. They can serve both goals at once.
The Parliamentary Budget Officer has modeled concrete redistribution scenarios for Canada, demonstrating that meaningful shifts in the tax-and-transfer system are fiscally achievable. Our findings suggest such shifts would also lead to a measurable reduction in greenhouse gas emissions.
Additionally, our work offers a more constructive way of communicating climate policy. Climate regulations are too often framed as an added burden on households already strained by rising living costs. The perception of having to give up something for the environment is shown to be an important barrier to public support for climate action.
By emphasizing how climate policy can also help create a fairer, more equal society, our study offers a more hopeful message, not about what we must give up, but what we stand to gain from moving toward a low-carbon future.
