As a customer, I’m concerned about the price of groceries. That’s one of the biggest expenses in my monthly budget, as it is for many people. But as a climate policy researcher, I’m frustrated to see those high prices get blamed on industrial carbon pricing when this policy has essentially no effect on the cost of groceries.
The fact is that industrial carbon pricing has no meaningful impact on the price of food. Our analysis at the Canadian Climate Institute shows that its effect on food prices would be, at most, a minuscule 0.1 per cent. That’s 1/48th of the current rate of food inflation. It’s like adding a penny to the price of two cartons of eggs.
We’re not the only ones saying so. Other researchers have found that the effect of industrial carbon pricing is a tiny fraction of food prices.
That evidence contradicts the (incorrect) argument that’s been circulating, which goes something like: industrial carbon pricing raises the cost of fuels, fertilizer, and farm equipment, leading to high prices at the grocery store. While that may seem intuitive, it’s not true.
So why does industrial carbon pricing have so little effect on food prices?
For starters, the industrial carbon price doesn’t apply to individuals or to large parts of the food supply chain. Much of our food is imported and unaffected by Canadian carbon pricing. As for food grown here in Canada, farmers don’t pay an industrial carbon price and neither do transport companies, so they don’t have direct costs to pass along to consumers. It’s a little different in Quebec, where all fuels are subject to the provincial cap-and-trade system, but even then research shows that the system’s costs amount to a fraction of a per cent of the price of food.
As for indirect costs, they’re minimal. Industrial carbon pricing only applies to large industrial emitters, and even then it has a muted (and sometimes even positive) effect on balance sheets, leaving few if any costs to pass along the supply chain.
That’s because industrial carbon pricing is designed to limit costs for industry even as it creates an incentive to cut emissions. Facilities don’t pay for all of their emissions, only those that exceed a specific threshold. And if they reduce emissions below that threshold, companies can even profit by generating carbon credits and selling them to other companies. The result is that there are few costs for industry to pass along to consumers.
What about the fuel used on farms, in trucks carrying goods on highways, and the machinery used in food processing? Industrial carbon pricing doesn’t materially affect the price of that fuel. In the oil sands, our analysis indicates that carbon pricing currently costs producers around 9 cents for a barrel of oil. Assuming that the Canada-Alberta MOU results in stronger carbon pricing, that cost might rise to nearly 50 cents—the price of a Timbit—per barrel by 2030. Not much, considering that a barrel of oil sands crude is worth the equivalent of 400 or so Timbits at recent prices.
As for nitrogen fertilizer, analysis by Clean Prosperity finds that the average producer is actually making money from carbon pricing. Fertilizer prices have risen for many reasons, including spikes in natural gas prices, but not because of carbon pricing.
Or take the steel used in farm equipment. Set aside the fact that industrial carbon pricing is designed to protect this trade-exposed sector from excessive costs. Even if industrial carbon pricing did raise the cost of steel, it wouldn’t meaningfully change the price of a combine or a pickup truck. The cost of steel is a fraction of the total price of the final product—for example, a $170 carbon price (much higher than today’s price) on steel would add less than $16 to the cost of a Chevy Silverado. That’s around 0.03 per cent of the price of the base model truck.
The actual causes of food inflation are not hard to find. According to one recent report, the major factors include supply chain disruptions, labour shortages, disruptive U.S. trade policy, and—you guessed it—climate change. Drought in Western Canada has driven up the price of beef, heat is damaging coffee crops, and a range of extreme and unpredictable weather patterns have contributed to spikes in the cost of lettuce, olive oil, and chocolate.
There are plenty of reasons for the high price of groceries, but industrial carbon pricing isn’t one of them.
By Ross Linden-Fraser, Research Lead at the Canadian Climate Institute’s 440 Megatonnes project
The views expressed are those of the author(s). National Newswatch Inc. publishes a range of perspectives and does not necessarily
endorse the opinions presented.