Balancing energy efficiency and social costs: Evidence from income disparities

As China pursues its dual goals of carbon neutrality and common prosperity, balancing energy efficiency improvements with social equity has become a key policy challenge. This study investigates the distributional effect of energy efficiency on urban-rural income inequality using panel data from 279 Chinese prefecture-level cities (2008–2021) and robust econometric techniques. The results reveal a nonlinear relationship between energy efficiency and the urban-rural income gap. While initial improvements narrow the gap, exceeding a critical threshold leads to widening income disparities. The analysis also highlights regional heterogeneity, showing that large cities tend to experience direct inequality increases, while smaller cities exhibit a U-shaped response. In resource-based cities, the resource curse effect further amplifies disparities. Furthermore, the study examines the institutional moderating mechanisms of government intervention, industrial upgrading, and marketization, which significantly shape the equity outcome of energy efficiency. Excessive government intervention may intensify inequality, while industrial upgrading and marketization help mitigate negative effects. These findings contribute to the literature on just energy transitions and offer practical guidance for achieving sustainable and inclusive growth.