Impact of Carbon Tax on Food Price: Insights from Food Focus Guelph

I posted on LinkedIn recently about my perspective on the impact of increased fuel prices on food prices in Canada and across North America. I will revisit that post in a blog here shortly. I had a LinkedIn connection suggest a gap in my analysis was the impact of th carbon tax in agriculture. It highlighted to me the significant misunderstanding of the carbon tax in Canada generally, and its role on consumer prices. I thought I would try to address some of these misconceptions.

Carbon taxation is not making any significant contribution to food prices in Canada

His comment was: "Another aspect is the fuel used in agriculture, not just transportation. Heating greenhouses or poultry farms, drying grains, etc. Many Canadian growers realized significant cost increases with the carbon tax, which remains after the consumer carbon tax was lifted. The increase in the cost of oil will also result in more carbon tax. The increase in oil prices will impact agriculture as well as getting the product to market, some products more than others."

Let's begin with the carbon tax that was discontinued a year ago. The impact of the consumer carbon tax on prices in Canada was relatively small. Work by Trevor Tombe and Jennifer Winter at the University of Calgary suggests that the impact of the consumer carbon tax on prices in Canada was less than 1% and that the impact on food prices was even smaller. In fact, in parts of Canada the carbon tax rebate more than offset the increased cost of food and other goods. Many Canadians are actually worse off without the consumer carbon tax. The Trudeau government did such a poor job of communication connecting the rebates to the charges that public opinion forced the Carney government to repeal the carbon tax making many people worse off and compromising climate policy. It's worth noting that the elimination of the carbon tax did not have a significant effect of lowering prices which is something those complaining about it have conveniently avoided talking about.

If that approach is not compelling enough, consider the USDA food dollar work. This suggests that on average transportation represents about 4% of the retail price of food. There is also a 3% energy component. While the current dramatic increase in energy prices will have some impact on the retail price of food, these small proportions would suggest that the impact of the carbon tax on average retail food prices would be relatively small. Its is also worth highlight that products with higher transportation costs proportions (such as fruits and vegetables imported from the US) have lower proportion of energy inputs. More processed products have higher energy input but lower transportation costs. Imported vegetables in Canada will be affected by higher energy costs but less so by the carbon tax because the bulk of the fuel to bring them here will have been purchased in the US.

Now consider Canada's industrial carbon tax. The industrial carbon tax does not apply to primary agriculture. While natural gas for drying grain and heating greenhouses was covered by the consumer carbon tax, most other energy use was exempt from the consumer carbon tax. The industrial carbon tax applies to only large industrial emitters which does not include individual farms. In fact, the focus of the industrial carbon tax is on export oriented facilities. It is estimated that only 14 large food processors in Canada would even potentially be covered by the tax and, because the government does not report who pays. Another study by Trevor Tombe and Jennifer Winter looked at the industrial carbon tax. It found that the industrial carbon tax had an impact of about 0.8% on food costs which was reduced to 0.5% when they included imported food. This is clearly not driving food price inflation.

One can criticize the industrial carbon tax for increasing the costs of production for oil extraction (particularly the oil sands) and large energy intensive mining operations. That is the point. The intention is to spur innovation to reduce emissions and reward those that do by giving them credits. However, oil price is largely set at a global level, so the industrial carbon tax is not passed on to consumers. You could argue it constrains economic activity by making oil production more expensive, but we are producing and exporting more than ever before. Regardless, the industrial carbon tax is not making any significant contribution to food prices in Canada.

The last point is relative to the increase in oil price increasing the amount of carbon tax. The industrial carbon tax is set on emissions and not as a percentage of oil price. It is agnostic to oil prices so there will be absolutely no impact on carbon tax due to higher prices. Higher prices will indeed squeeze farmers and others along the supply chain but there will not be any additional paid due to carbon taxes.

It is worth having a discussion on the tradeoffs between environmental objectives and economic ones, but we should be doing it based on accurate information.

Recommended citation format: von Massow, M. "Impact of Carbon Tax on Food Price: Insights from Food Focus Guelph". Food Focus Guelph (138), Department of Food, Agricultural and Resource Economics, University of Guelph, March 21, 2026.

Key words: Carbon tax, food, food price, inflation, food inflation, climate change