Think the carbon tax caused inflation and gas price hikes? Well, you're wrong
If you drive in Canada, you were probably traumatized by the record-breaking high gas prices coming out of the thick of the COVID-19 pandemic.
Records were frequently being shattered every month with drivers in some provinces like Vancouver having to pay over $2.30 per litre.
But while critics have blamed the soaring gas prices and inflation on the federal government’s carbon tax, a new report found that it has had little impact on the cost of fuel or goods.
The International Institute for Sustainable Development (IISD) released a report this month that delves into how fossil fuels are the real drivers of inflation and “make life less affordable for Canadians.”
Jessica Kelly, IISD senior policy advisor and author of the report, argues that a key element of inflation often overlooked is “the significant impact of oil and gas prices.”
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“Canada’s energy use is highly dependent on fossil fuels, meaning that the price of energy services, such as transportation, home heating, and power, are impacted by international fossil fuel markets,” she wrote. “Non-energy items, such as food and various durable goods and services, are all impacted by oil and gas price changes.”
Kelly wrote that the economic impact of Canada’s reliance on fossil fuels was highlighted during recovery post-pandemic.
Energy demand grew rapidly as COVID restrictions lifted in 2021 and economies began recovering. The report found that supply challenges rose due to slow oil production, unexpected outages in liquefied natural gas, and Russia’s invasion of Ukraine.
“This combination of demand-side and supply-side pressures led to skyrocketing international oil and gas prices,” Kelly wrote.
As a result, the average price of gas spiked by 55% in the year leading up to June 2022, according to the report. Canadians were paying an average of $2.07 per litre for gas, while diesel fuel prices soared more than 80% in certain regions over the same period, according to Statistics Canada.
Although the carbon tax also rose during this period, Kelly notes that only $0.03 of the $0.73 year-over-year increase in the cost of gas per litre was attributed to the tax. The remaining $0.70 was caused by international pricing dynamics.
IISD
The report also argues that carbon pricing has a minimal (less than 0.3%) impact on the cost of most goods and services. In addition, the Bank of Canada says it contributes only 0.15 percentage points to energy price inflation before accounting for carbon rebate payments.
It isn’t the only study that has come to a similar conclusion.
The University of Calgary’s School of Public Policy released research last year that also found that blaming the carbon tax for high gas prices and the soaring cost of goods and services isn’t necessarily a valid argument.
This report comes after Ottawa hiked the carbon tax by 23% in April, an increase of about three cents per litre of gasoline. That brings the total carbon tax per litre to 17.61 cents, up from the 2023 tax of 14.31 cents.
Overall, the increase is $80/tonne of Co2, up from $65 per tonne, and the expected profit from that increase alone is forecast to be $229 million.
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