How the CBC Alberta carbon tax calculator assesses groceries and indirect costs

Why we pegged the indirect cost increase on groceries at 1.5% and didn't include other consumer items in our online estimation tool.

Online tool meant to provide rough estimate of indirect costs, economists say actual food increase to be lower

What impact will Alberta's new carbon tax on fossil fuels have when it comes to the price of things like groceries and other consumer goods? It's not an easy question to answer. (CBC)

Calculating the direct costs of Alberta's new carbon tax is pretty straightforward but figuring out the indirect costs on other consumer goods is much more complicated.

We know gasoline, for example, will cost 4.49 cents more per litre when the carbon tax takes effect in 2017, but what about the tomato at the grocery store? It took gasoline to get that tomato to the shelf, after all, so will the price of the produce rise, as well?

The answer is complex, because there are so many factors at play.

In the Carbon Tax Calculator we created to accompany our recent story on what the new carbon tax will mean for Albertans, we made several assumptions in order to provide a simple and rough estimate of indirect costs.

Some economists noted we overestimated the cost increases for food specifically, however, and some readers noted we didn't didn't include specific costs for other household goods.

So we want to clarify and offer more explanation here.

Why groceries, and why 1.5%?

For the purposes of the calculator, we asked users to input their approximate monthly grocery bill as a measure of spending that would be indirectly affected by the carbon tax. This was a simple and rough way of getting a sense of a household's indirect costs, but it's far from a precise estimate.

There are, of course, indirect costs on things other than groceries, but food is a universal and regular expense for all households and most people can approximate their monthly grocery bill. It also would have been impractical to have users enter their monthly spending on all consumer goods and services.

For the same reasons, we asked the six families we profiled for an estimate of their monthly grocery bills.

Then, we applied an estimated increase to those figures that's higher than what most economists project for food, alone, to compensate for not including other items.

It's a rough estimate, but we assumed a 1.5 per cent increase in 2017 and a 2.25 per cent increase in 2018.

What economists say

In a 2012 paper, University of Ottawa economist Nic Rivers estimated a $30-per-tonne national carbon tax would increase the price of food and non-alcoholic beverages in Canada by about 1.2 per cent.

But Alberta's carbon tax, on its own, is likely to have a much smaller impact, according to University of Calgary economist Trevor Tombe, who has made his own estimates using advanced modelling software from Statistics Canada.

Tombe pegs the figure at just 0.3 per cent in 2018.

There are several reasons for this. For one thing, the provincial tax won't apply to fuel used to transport groceries or other goods from outside the province. Local farmers are also exempt from paying the carbon tax on marked agricultural fuel, commonly known as "purple gas."

Tombe noted grocery stores, themselves, probably won't have to pay more for power, either, as electricity prices aren't expected to change when the carbon tax kicks in.

Similar average price increases in real dollars

While our simplified methods are far less precise than those in Tombe's modelling, the rough approximations yield a bottom-line result that's in the same ballpark.

Based on our assumptions, the six families we profiled are facing an average indirect cost increase of $91.50 in 2017, rising the following year to $137.25.

In Tombe's model, by comparison, the average household is looking at an increase of $159 in 2018.

Here's how his model breaks down direct and indirect carbon tax costs, based on household income.

University of Calgary economist Trevor Tombe created this graph based on advanced modelling of the indirect costs (seen in orange) that Albertans are projected to pay due to the carbon tax in 2018, based on their income. (Trevor Tombe)

In an interview from his University of Ottawa office, Rivers told CBC News it's difficult to "precisely identify" the indirect costs of a carbon tax given the interaction of so many economic variables.

He was more certain about one thing, however.

"I think the average Albertan will see this mostly on the direct costs," he said.