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Food inflation is not caused by industrial carbon pricing. Here’s why.

By Ross Linden-Fraser – March 26, 2026

The effect of industrial carbon pricing on food prices is miniscule—like adding a penny to the price of two dozen eggs.

Key insights

  • Industrial carbon pricing has a nearly imperceptible impact on the price of food, adding around 0.1 per cent in 2026—like paying a penny more for two dozen eggs. 
  • It has so little impact on food prices because these systems don’t apply directly to much of the supply chain and are designed to limit costs for industry.
  • The real drivers of food inflation include spikes in the price of fossil fuels, disruptive trade practices, and climate change.

The Bank of Canada has warned that inflation may be about to rise again due to the war in Iran. In this context, some have claimed that industrial carbon pricing is also driving inflation of food prices here at home. But that’s inaccurate: the evidence shows industrial carbon pricing has a miniscule effect on food prices in Canada, one that’s barely noticeable compared to the real drivers of food inflation.

According to our analysis, the impact of industrial carbon pricing on food prices will amount to around 0.1 per cent this year. That’s like adding a single penny to the price of two dozen eggs. If carbon pricing is strengthened as intended by the Canada-Alberta Memorandum of Understanding, the average impact would still only amount to around 0.15 per cent in 2030. 

Figure 1 shows the modelled impact of industrial carbon pricing on food prices. Our calculations reflect the impact of industrial carbon pricing on the average price of food, so the impact of specific food items would vary depending on where they come from and how they are produced. But our analysis makes it clear that the overall impact is tiny.

Figure 1

This analysis is based on the Canadian Climate Institute’s independent assessment of carbon pricing systems, using food price outputs from Navius Research’s gTech model. We’ve updated those results by applying a linear scale to reflect subsequent changes in carbon prices, assuming that systems have an effective carbon price of $65 per tonne in 2026 (a conservative assumption, considering that credit prices in Alberta are around $30 per tonne and Saskatchewan has suspended its system), rising to a price of $130 per tonne by 2030.

Industrial carbon pricing has little impact on food prices because it creates few direct costs and low indirect costs

There are two main reasons that industrial carbon pricing has so little effect on food prices.

The first reason is that industrial carbon pricing has almost no direct impact on food supply chains. The price doesn’t apply to the roughly 30 per cent of the country’s food that is imported. Since it only applies to industry and not individuals, neither farmers nor transport companies nor grocery stores are directly affected. While there are direct costs for some food processing plants, the price only applies to between 25 and 90 of the nearly 12,000 such businesses in Canada. And even then, the costs for those facilities are low because of how industrial carbon pricing is designed.

This brings us to the second reason for the low impact of industrial carbon pricing, which is that it’s designed to create very low costs for industry. Under industrial carbon pricing systems, facilities only have to pay for emissions that exceed a set limit. If the firms have low emissions-intensity (or if the limit is set generously), then they have fewer if any costs to pass along—and some firms can even profit.

So even when the industrial carbon price has indirect links to food supply chains—through the electricity used to power machinery or refrigerate food, the production of crude oil, gas, and refined fuels, or the petrochemicals that ultimately become fertilizer or plastic packaging—it creates few if any costs for industry to pass down the supply chain. 

Take fertilizer, for example. Research has found that on average, these facilities face no net costs from industrial carbon pricing. Or the oil sands, where our research suggests that the average cost of industrial carbon pricing is a mere 9 cents per barrel of oil in 2026. Our analysis suggests that the main connection between industrial carbon pricing and groceries is electricity prices, but these would have only a limited impact on the price of food.

The bottom line is that the impact of industrial carbon pricing on food prices is so small it’s barely noticeable. Food inflation is real, but it has other causes, including volatile fuel prices that are currently driving up the cost of fertilizer, disruptive trade practices, and of course, climate change.

Ross Linden-Fraser is a Research Lead at the Canadian Climate Institute.