The Bottom Line

The document examines how fossil fuel price volatility contributes to overall inflation in Canada, noting that energy prices accounted for 33% of Canada's overall inflation from February 2021 to June 2022. It argues that transitioning to a net-zero electricity grid by 2050 could save Canadian households an average of CAD 1,500 annually and reduce total energy costs by CAD 15 billion per year. The brief highlights the 'spillover effect' where energy price hikes increase costs for non-energy items, such as food, and can lead to central bank interest rate hikes that further squeeze affordability. It recommends policies that encourage fuel switching to electric vehicles and heat pumps, as well as investments in renewable energy infrastructure to ensure long-term price stability.

• Fossil fuel prices are the most volatile component of Canada's overall inflation, significantly impacting both energy services and non-energy items. Between February 2021 and June 2022, energy prices were responsible for 33% of the country's total inflation.
• The integration of regional natural gas markets with global liquified natural gas (LNG) markets increases Canada's exposure to global price shocks. This means domestic supply may drop to meet export demand during global surges, potentially spiking North American gas prices.
• Climate-related disruptions and geopolitical tensions exacerbate fossil fuel price volatility. Examples include the 2021 polar vortex affecting Texas and the Gulf of Mexico, and Canadian wildfires in 2016 and 2023 that impacted oil production and prices.
• Energy price spikes create a 'spillover effect' on non-energy items; up to 25% of non-energy items in the consumer price index are sensitive to oil prices. This contributed to nearly 60% of Canada's non-energy inflation in July 2022.
• Transitioning Canada's electricity grids to net-zero by 2050 could result in total energy cost savings of up to CAD 15 billion per year, with an average annual saving of CAD 1,500 for most Canadian households.
• Renewable energy costs have fallen significantly, with the levelized cost of electricity (LCOE) dropping 89% for solar and 69% for onshore wind. In 2023, over 95% of new utility-scale solar and onshore wind capacity had lower generation costs than new coal and natural gas plants.
• Switching to electric vehicles (EVs) and heat pumps provides substantial cost savings over fossil fuel alternatives. For example, a standard heat pump with electric backup can be 13% cheaper over its lifetime than a gas furnace with air conditioning, and EVs generally have lower total ownership costs than internal combustion engine vehicles.

APA

Kelly, J. (2024). The Bottom Line. International Institute for Sustainable Development. https://www.iisd.org/system/files/2024-07/fossil-fuels-drive-inflation-canada.pdf

Chicago

Kelly, Jessica. The Bottom Line. International Institute for Sustainable Development, 2024. https://www.iisd.org/system/files/2024-07/fossil-fuels-drive-inflation-canada.pdf.

Wikipedia

{{cite report |last1=Kelly |first1=Jessica |title=The Bottom Line |publisher=International Institute for Sustainable Development |date=July 2024 |url=https://www.iisd.org/system/files/2024-07/fossil-fuels-drive-inflation-canada.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{kelly2024bottom, author = {Kelly, Jessica}, title = {{The Bottom Line}}, institution = {International Institute for Sustainable Development}, year = {2024}, month = jul, url = {https://www.iisd.org/system/files/2024-07/fossil-fuels-drive-inflation-canada.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }