With the growing adoption of Text-to-Image (TTI) systems, the social biases of these models have come under increased scrutiny. Herein we conduct a systematic investigation of one such source of bias for diffusion models: embedding spaces. First, because traditional classifier-based fairness definitions require true labels not present in generative modeling, we propose statistical group fairness criteria based on a model's internal representation of the world. Using these definitions, we demonstrate theoretically and empirically that an unbiased text embedding space for input prompts is a necessary condition for representationally balanced diffusion models, meaning the distribution of generated images satisfy diversity requirements with respect to protected attributes. Next, we investigate the impact of biased embeddings on evaluating the alignment between generated images and prompts, a process which is commonly used to assess diffusion models. We find that biased multimodal embeddings like CLIP can result in lower alignment scores for representationally balanced TTI models, thus rewarding unfair behavior. Finally, we develop a theoretical framework through which biases in alignment evaluation can be studied and propose bias mitigation methods. By specifically adapting the perspective of embedding spaces, we establish new fairness conditions for diffusion model development and evaluation.