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Buying eco-friendly products and services, a.k.a., utilities is only for the rich and elite, right?

Or is it?

TCO

The main factor behind the aforementioned commonly-held belief is that eco-friendly versions of conventional products tend to be more expensive than the latter. But this line of thinking is flawed for several reasons, as we’ll see below.

Firstly, it’s important to avoid being “penny-wise and pound-foolish”.

In other words, consider the total cost of ownership (TCO) when purchasing a utility, rather than just the sticker price you have to pay initially. For example, as we have already seen, the TCO of LED bulbs may be much lower than conventional incandescent ones¹, even though they may be a bit pricier to purchase than the latter.

The difference between LED and incandescent bulbs becomes even more pronounced when you broaden the definition of TCO from a purely monetary basis to consider the environmental impact as well. The purchase price of a product doesn’t usually reflect the total environmental impact associated with its production, use, and disposal – a phenomenon termed as “externality” in economics. A major component of externality of a product arises from what happens to a product at the end of its usable life. The most common scenario is that it gets discarded in the trash can, and ultimately ends up in a landfill somewhere. As the product slowly disintegrates in the landfill, it can leak out toxic chemicals and gases, which damages the ecosystem around the landfill, and ultimately other ecosystems that are ultimately connected to it.

The upshot of all this is that buying products that are more durable would reduce your holistic TCO (including the environmental cost) than an alternative cheaper product that isn’t as durable.

Financial runway

There is another more fundamental reason why basing your purchasing decisions on sticker price is narrow-minded.

Consider the common trope doled out by older folks, “Things used to be so much cheaper during my time!” For example, in the US, someone who made 1,000 USD a month in the 1960s would be considered very well-off, whereas today, the same amount may not be enough to pay for the basic necessities of life in many big US cities. The primary reason for this discrepancy is the phenomenon of “inflation”. Because of inflation, the purchasing power of any given amount of money is eroded over time. This implies that the absolute amount of money you currently have is not really relevant. What is more relevant is how long the money you have can sustain you, i.e., your financial runway.

It turns out that the impact of spending more to buy eco-friendly utilities on your financial runway is very minimal.

For example, if you buy a more expensive, but more eco-friendly laundry detergent for 70 LCU instead of the regular, non-eco-friendly one for 50 LCU, you may find that your financial runway² may change from 1.0983 years to 1.0981 years. In other words, there is no material difference to your financial runway if you opt for the planet-friendly alternative to your regular one. In fact, if you consider the lower TCO of eco-friendly utilities compared to conventional ones, buying the former might actually benefit your overall financial runway.

So why not go for a product that’s friendlier for the planet?

Economies of scale

Economics provides one more reason why you should opt for eco-friendly alternatives to your usual utilities whenever you can.

The price you have to pay for buying a given utility is determined, among other things, by the cost of its production. Basic economic theory tells us that the cost of production usually consists of the following two components

• fixed costs,
• variable costs.

The basic difference between the two kinds of production costs is that the former is independent of the number of units produced, whereas the latter is not. It follows that if a business produces more units of a given utility, the fixed cost per unit will come down. This phenomenon is a manifestation of the economic concept of “economies of scale”.

Due to economies of scale, the business will be able to offer the same utility at a lower price to consumers.

In other words, when you purchase an eco-friendly utility, you’re empowering that eco-friendly business to reduce the price of that utility not just for you, but for everyone else over time.

Over time, the eco-friendly utilities will become price-competitive with the conventional non-eco-friendly ones, thereby making them affordable for those who could previously only afford the latter.

In summary, you should try to buy eco-friendly utilities, which tend to have lower TCO, whenever you can, even if they’re slightly more expensive since the impact on your financial runway is usually going to be minimal (or even positive), and to support eco-friendly businesses achieve economies of scale thereby benefiting everyone.