Volatile Costs of Fossil Fuel Energy were a Key Driver of Recent Record Inflation and Continue to Impact Affordability

July 17, 2024, Ottawa—With inflation and affordability top of mind for Canadians, a new report from the International Institute for Sustainable Development (IISD) warns that fossil fuel reliance keeps consumers stuck on an energy price rollercoaster and exposes Canada to energy price-driven inflation. A significant portion of Canada’s primary energy, and roughly 18% of Canada’s electricity, is provided by fossil fuels. Between February 2021 and June 2022, energy price increases contributed to a third (33%) of Canada’s overall inflation.  

In addition, up to 25% of non-energy items within the Consumer Price Index are sensitive to oil prices, including food, various goods and services, and costs for shelter (both owned and rented). If Canada remains dependent on fossil fuels, energy-driven inflation risks will persist. The report calls upon all levels of government to establish policies that will support a transition from fossil fuel dependence to help reduce inflationary risks while supporting affordability for Canadians.  

In the last decade, the costs of renewable energy have dropped dramatically, presenting an opportunity to improve Canada’s energy affordability, efficiency, and security. The report highlights that lowering household energy expenses through fuel switching, improving efficiency, and adopting electrification directly reduces the cost of living.  

Drawing on recent analysis, the report highlights that by transitioning the country’s electricity grids to net-zero by 2050, Canada could save up to CAD 15 billion per year, cutting average household energy expenses by CAD 1,500 annually. Strategic climate policies enacted by governments can encourage cost savings for households that switch their energy supply from fossil fuels to electricity. 

Fossil fuel prices are tied to international oil and gas markets, which are affected by boom-bust commodity cycles, geopolitical interference, and imbalances between supply and demand that are beyond our control.   

“The impact of spiking oil and gas prices goes beyond the price at the pump and our heating bills,” says Jessica Kelly, senior policy advisor at IISD and author of the report. “It impacts the cost of everyday needs such as food, clothing, furniture, restaurant meals, and even the buildings we live in, whether rented or owned.” 

As climate change worsens, fossil fuel assets and supply chains face heightened risks amid fluctuating oil and gas prices. On top of that, declining global demand could intensify market volatility. 

“Recognizing energy's crucial role in price stability, governments can and should champion policies to discourage fossil fuel use,” says Kelly. “This includes maintaining current actions such as carbon pricing, fuel taxation, and fossil fuel subsidy reform. But these efforts must be balanced with policies that drive energy efficiency, fuel switching, and renewable energy measures. Supporting consumers in adopting alternatives to fossil fuels will help lower their cost of living while speeding up the transition to more affordable, reliable, efficient and clean energy for Canada.” 

Media contact: 

For more information or to interview Jessica Kelly, please contact Trish Tervit, communications lead: trish.tervit@iisd.net