A gas pump with a government of Ontario carbon tax sticker on it.
A gas pump with a government of Ontario carbon tax sticker on it. Credit: Sikander Iqbal / Wikimedia Commons Credit: Sikander Iqbal / Wikimedia Commons

Canadians have been bombarded with paid advertising from oil companies and their various ‘front’ groups about how continued fossil fuel expansion is necessary to help Canadians put food on the table, and pay their monthly bills. 

A television ad from the Alberta government shows a family being forced to put food back on the grocery store shelf. A billboard from oil giant Cenovus shows an outstretched hand holding a shrunken bag of groceries. An ad from industry shills Energy United shows a family having to abandon their annual family vacation. In all cases the hardship was caused by the supposed impact of climate policies on affordability.

The oil industry is seizing on the understandable fear and anger experienced by millions of Canadians after the cost-of-living pressures of recent years. After all, Canadians have endured a punishing series of challenges: the pandemic, a surge of inflation, punishing interest rates, and a slowdown in employment—now topped off with Donald Trump’s tariff war.

So the oil industry is exploiting public fear to advance its vision of unlimited fossil fuel expansion, and unconstrained oil industry pollution. Getting rid of the federal carbon price was just the first step. Now the industry’s sights are set on blocking the federal cap on emissions from the petroleum industry (by far Canada’s largest greenhouse gas polluter), eliminating environmental reviews for new energy projects, and accelerating new taxpayer-subsidised pipelines.

Conservative leader Pierre Poilievre loyally amplifies these themes, blaming the carbon price for everything wrong in Canada. Since new Prime Minister Mark Carney has cancelled the consumer carbon price, Poilievre is scrambling to keep his ‘Axe the Tax’ campaign alive—now pledging to eliminate carbon regulations on major industrial polluters that have been in place for years.

Given how the oil industry and Conservatives are exploiting Canadian concerns with affordability, it’s vital that we review and understand the true causes of the challenges facing living standards since the pandemic.

A forensic analysis of Statistics Canada data on the composition of recent inflation confirms that fossil fuels haven’t protected Canadians from affordability problems. In fact, fossil fuels were the biggest single cause of those problems.

The 2022 spike in global oil prices, channeled immediately into higher prices for fossil fuel products sold in Canada, was by far the biggest single factor setting off post-pandemic inflation. From January 2021 through June 2022 (when inflation peaked), consumer prices for fossil fuels grew 81 per cent. Prices for fossil fuels used as inputs by businesses grew even more, by 127 per cent.

The direct costs of higher fossil fuels caused almost half of all consumer price inflation in that time—and more than half of inflation over the Bank of Canada’s two per cent target. Add in the indirect costs faced by businesses in other industries (from agriculture to transportation to construction) for their fossil fuel purchases, all passed on to consumers, and the dominant role of fossil fuels in the inflationary surge is clear.

Moreover, the pain was not limited solely to higher prices. Within days after oil prices spiked to $130 (U.S.) per barrel in early 2022, the Bank of Canada imposed the first of ten painful hikes in interest rates. Over the next three years, Canadians paid $65 billion extra in interest costs because of higher rates.

Those rate hikes, in turn, hammered Canada’s labour market. Indeed, that was the Bank of Canada’s goal: to slow down growth and job-creation, and dissipate the so-called ‘excess demand’ that it (wrongly) blamed for the inflation. So Canadian workers lost many billions more in foregone employment income from reduced employment opportunities and slower wage growth.

With co-author, economist Erin Weir, I have added up the combined costs to Canadians of higher fossil fuel prices, across four major categories:

  • Higher prices for fossil fuels purchased directly by consumers.
  • Indirect costs from fossil fuels purchased by other industries, passed on to consumers.
  • Higher interest expenses from the Bank of Canada’s rate hikes (largely motivated by inflation from rising fossil fuel prices).
  • Reduced wages and salaries due to the slowdown in employment resulting from high interest rates.

The combined costs from the oil price spike are staggering: almost $200 billion lost to workers and consumers from 2022 through 2024. That works out to $12,000 per household, on average. And because fossil fuel prices, interest rates, and unemployment are still elevated, that cost continues to grow: by $5 billion, or $300 per household, with each passing month.

This will be shocking news to Canadians who blamed the carbon tax, or immigrants, or Justin Trudeau personally, for inflation and affordability challenges after the pandemic. It’s no accident that vested interests—from the oil industry to the Conservative Party—have tried to divert Canadians’ righteous anger toward those scapegoats. They don’t want us to know where the true problem originated.

That’s why it’s so important that Canadians understand the true source of affordability challenges. We must insulate against being distracted by false culprits. And we should learn from this history, so we can protect ourselves against repeating it in the future.

Contrary to common assumption, global oil prices are not set by the real economic forces of ‘supply and demand.’ And the painful spike in prices in 2022 was not caused by a shortage or ‘supply shock’. To the contrary, oil supply grew steadily throughout this whole period (in both Canada and globally), before and after the Russian invasion of Ukraine that was the superficial reason for higher prices.

Canada’s fossil fuel prices follow trends set in world oil futures markets. Those are global casinos which trade in paper assets, not physical oil. Financial investors and speculators bet on changes in oil prices; they took advantage of fear and uncertainty arising from the invasion of Ukraine to send prices soaring.

For every barrel of oil produced anywhere in the world, futures markets trade 13 barrels. Fossil fuel prices are thus hostage to speculation, geopolitics, and cartel behaviour. They are definitely not determined by ‘supply and demand’.

Since that price spike did not reflect fundamental economic factors (like supply and demand, or cost of production), it fed directly into the profits of petroleum corporations around the world—including in Canada. Canadian oil and gas operating profits grew by $151 billion (compared to 2019 levels) from 2022 through 2024. 

So it’s not hard to ‘follow the money’: straight from the extra expenses of Canadian consumers and workers, to the profits, dividends, and executive bonuses of the oil and gas industry.

Looking back at the true causes of post-COVID inflation is not just a historical exercise. Oil prices have spiked and collapsed many times before, and it will happen again. Indeed, Donald Trump’s erratic actions are creating huge instability around the world. This will inevitably cause ruptures in futures markets—due to economic, financial, or geopolitical chaos.

To protect against the next outbreak of speculative mania in the world oil casinos (and resulting inflation here at home), there are obvious policy responses. First, we should insulate day-to-day fossil fuel prices from the roller coaster of global futures markets. There are many international examples of how prices can be stabilized, through circuit breakers and limits on price volatility, direct price regulations, or restrictions on financial trading.

Second, when price spikes occur, we should capture and redistribute the resulting windfall, sharing it with Canadians whose inflated purchases were the source of record oil industry profits. Provincial royalty systems should strengthened. And the federal government should impose excess profit taxes on oil companies profiting from future price spikes (as it did with banks and insurance companies after the pandemic), using that revenue to compensate Canadian consumers.

Finally, the ultimate solution to oil price volatility is to accelerate energy conservation and the transition to renewable energy systems. Thankfully, the sun and wind are not subject to the whims of financial speculation on futures markets. So for the sake of our economy, not just the environment, reducing our use of fossil fuels makes sense—and the faster, the better.For more detail on the impact of fossil fuel prices and profits on Canadian inflation and affordability, please see Counting the Costs: Impacts of the 2022 Oil Price Shock for Canadian Consumers and Workers, by Jim Stanford and Erin Weir.

Jim Stanford

Jim Stanford is economist and director of the Centre for Future Work, a progressive labour economics institute based in Vancouver. He has a PhD in economics from the New School for Social Research in New...