How much does the carbon tax add to inflation?

More than you think

The Bank of Canada says the carbon tax adds 0.15 percentage points to annual inflation, a relatively small amount comprising only 7.5% of the Bank’s 2% annual inflation target. But the Bank admits that is the direct effect of the carbon tax, and does not include its indirect effects.

Those indirect effects are important. Energy is a major cost of everything that is heated, cooled or moved in Canada’s economy. Max Fawcett, a would-be journalist with a big mouth and a big ego, shoots off posts on X devoid of substance claiming the carbon tax is more or less irrelevant to inflation. Let’s dig a little deeper than he cares to.

A major element of everyone’s cost of living is the cost of energy to heat or cool their homes. The Canadian Energy Regulator estimated the average household spent about $4,218 on energy in 2017, about 5% of total expenditures.

Canada’s federal carbon tax was enacted when The Parliament of Canada passed the Greenhouse Gas Pollution Pricing Act (GHGPPA) in the fall of 2018 under Bill C-74. Six years later, the carbon tax has risen from $20 per tonne of CO2 in 2019 to today’s carbon price of $80 per tonne, a fourfold increase in 5 years. Trudeau plans to increase it steadily to $170 a tonne by 2030. It is a useless tax since CO2 plays no material role in global temperatures.

The carbon tax flows through many household items, but the largest are the costs of fuel for a vehicle, electric power and natural gas heating. I keep detailed records of my household expenses using Quicken. Here are some comparisons of 2023 and 2019.

Fuel for my car - 2019 - $1,177, 2023 - $2,275, an increase of 93%

Electric power - 2019 - $2,080, 2023 - $2,765 an increase of 28%

Natural gas - 2019 - $2,915, 2023 - $4,673 an increase of 60%

I am retired and live on a fixed income comprising CPP ($1,108 a month) and investment income (varies but significant). Same house, same appliances, same driving habits, and material rise in my cost of living. Carbon tax comprises a significant part of the increase. While I have lots of investment income and no one needs to have a tag day for me, a lot of my relatives in the Ottawa Valley (near Moose Creek, Ontario) live on CPP and OAS and the inflation caused by the carbon tax makes their lives almost unbearable.

Produce is another item. Ontario imports a lot of produce in winter months when locally grown produce (other than from greenhouses) is in short supply and for items not grown in Canada. About 2 billion pounds of produce are shipped into the Ontario Food Terminal annually, with some 1 million vehicles arriving each year to drop off produce from abroad or ship it to Ontario retailers. The average local load is 2,000 pounds of produce, surprisingly little until you realize that Ontario is a large Province and retailers are spread out geographically and produce is more bulk than mass.

Produce is shipped in refrigerated trucks called “reefers”. These trucks burn about 0.75 gallons of diesel fuel per hour and need to refuel on average every 2 to 4 days. Trucks ship to and from foreign destinations a leave Canada with a full tank, enough for most of a round trip. Little fuel is purchased abroad. When it is, despite Fawcett’s rhetoric, is not cheaper than in Canada if you are shipping from California. Diesel fuel in California cost $6.00 per gallon in 2023.

A round trip on average takes six days. 50 gallons of diesel fuel equates to 200 liters and diesel fuel today costs approximately $1.60 per liter so the fuel cost a full tank is about $320 in Canada (4 liters per gallon) and US$300 in California, equivalent to $400 in Canadian funds. Truckers try to avoid filling up in California and drive north to Canada rather than put up with traffic jams and high fuel costs in the Golden State.

Shipping within Ontario is short-haul but the fuel cost is the same. Translated into cost per pound of produce shipped across Ontario, outbound freight fuel today adds about $0.16 per pound of produce for a 2,000 pound truckload, as much as doubled by the cost of returning the empty truck to the terminal.

The carbon tax adds materially to the cost of produce in Ontario. It is time for you to grow up Mr. Fawcett, stop pushing socialist drivel on X or anywhere else you write, and start to make a real contribution to Canada by getting a productive job.