We need to pause carbon taxes affecting our food supply chain until we get a clearer picture of their impact on food prices
Political desperation can be a powerful thing, as we witnessed last week in Ottawa. The Trudeau government not only put a hold on the carbon tax applied to heating oil for three years, but it also announced a doubling of the rural supplement in the carbon tax rebate program.
In mere minutes, Ottawa not only transformed the carbon tax into a negotiable political lightning rod but also lent credence to those who have voiced doubts about the narratives surrounding carbon pricing.
For starters, the government’s decision to increase rural supplements in the carbon tax rebate program implicitly acknowledges the argument that suggested the rebate might not have been sufficient to cover the associated costs.
It is clear that carbon tax proponents in academic circles are now receiving less attention from Ottawa. As the cost of living becomes a matter of survival for many Canadians, Ottawa is beginning to heed the concerns of the broader population, not just environmental activists.
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Carbon pricing undeniably carries significant weight in Canada, serving as a critical policy to address climate change concerns. In particular, the agri-food sector faces an arguably substantial threat from climate change, leaving inaction as an undesirable option. Decarbonizing the economy is rapidly becoming a global priority, and Canada must play its part. Despite the unpopularity of carbon pricing in some quarters, it stands out as a relatively lesser evil for the economy. However, when it comes to food, the stakes are notably higher.
Since the Trudeau government has paused the carbon tax for heating oil, a compelling case can be made for examining the impact on our entire food supply.
It is imperative that we conduct a rigorous evaluation of how carbon pricing affects food affordability for Canadians and the long-term competitiveness of our industries. Unfortunately, comprehensive analyses in this regard have been conspicuously lacking, with much of what we’ve encountered appearing to be influenced by biased narratives, particularly from organizations like the one-sided Smart Prosperity Institute and Climate Change Centre, which often rely on a limited pool of intellectual activists.
Nevertheless, our research team at Dalhousie University, comprised of several researchers, has begun shedding light on the scarcity of research in this critical area.
What needs to be underscored is how the public discourse surrounding carbon pricing and food affordability has been misdirected. Rather than asking whether the carbon tax is an easy scapegoat for high food prices, the more pertinent question is whether the carbon tax negatively impacts the competitiveness of our food industry.
Quantifying the direct and straightforward impact of carbon pricing on retail food prices is challenging, if not impossible, given the many factors influencing prices, including consumer behaviour and weather. Suggesting that carbon pricing has a direct, linear effect on retail food prices would be misleading. Prices fluctuate for various reasons, so our primary focus should be on industrial and wholesale prices.
Our research has revealed a significant contrast between industrial and wholesale prices. Industrial prices are notably more susceptible to cost fluctuations, which unquestionably encompass the influence of carbon pricing. These cost increases within the supply chain are far more quantifiable and trackable. In recent years, the Industrial Product Pricing Index related to food has outpaced the Consumer Price Index for food prices, a trend that has been largely overlooked.
Carbon pricing has led many to become passive when assessing environmental politics, failing to critically question the figures presented. For example, the Bank of Canada recently made claims about carbon pricing that went unchallenged. It estimated that only 0.15 percent of inflation could be attributed to carbon pricing, but this calculation considered only the direct impact of the carbon tax on three products included in the consumer price index: gasoline, heating oil, and natural gas. It did not account for second-round or pass-through effects.
What was concerning is that not a single reporter questioned how the Bank arrived at this conclusion until Dalhousie University sought this information. It’s as if everyone was sleepwalking.
While the outright elimination of the carbon tax is not advisable, a temporary pause on any carbon pricing policies affecting our food supply chain should be considered until we gain a clearer understanding of their impact. Such a measure would be a responsible course of action at this time.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.
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