Is It Worth Going Green?

By Douglas Rice | July 29, 2009 AAA
Is It Worth Going Green?

If the costs were the exact same, most people would prefer a more environmentally friendly product. However, when "green" products cost more, the choice isn't so simple.
If we remember that economics is the study of unlimited wants competing for limited resources, then we should consider that the desire to "go green" exists, but consumers also think of what else could be done with the money and what they really want. In other words, because we all have limited money, how much of it should we spend on the environment given what else we could use it for? (Learn more in What Does It Mean To Be Green.)

When Going Green Goes Wrong
Here are some examples where going green may or may not be worth it to you:

Hybrid Cars
If the car costs more, which hybrids typically do, your car choice is less about finances and more about making a statement of who you are or what you believe.

In comparing a very popular car model that has both hybrid and non-hybrid versions, the hybrid gets 45mpg and the another gets 26mpg. Sounds like savings. Doing the math shows that with 15,000 miles a year and $2.50 gas, the hybrid saves you over $600 per year. Not bad. But if the car costs $6,000 more, then it will be in the junk heap before it ever pays for itself, especially when we add in the time value of money.

But that's not all that needs to be considered. What could you have done with that $6000 up front? While some may say it's nothing more than a vacation, others might say it's the start of their kid's college fund. (Learn more in 5 Ways To Fund A College Education.)

Energy-Efficient Appliances
According to the Federal Trade Commission, the annual costs to operate a popular size refrigerator-freezer is between $50 and $70 a year, and they suggest "a $20 difference in annual operating costs might not sound like much, but remember that you will enjoy these savings year after year for the life of the appliance, while you must pay any difference in purchase price only once." But it's not over the life of the appliance for most people.

The National Association of Realtors says that typical homeowner stays in their home six years. So that's a $20 for six years, meaning $120 in electric bill savings during the life that you owned the appliance. Perhaps the more apt point here is that a difference of only $20 a year is basically irrelevant to the purchase decision. (Read more in Building Green For Your House And Your Wallet.)

Organic Food
A 2002 study showed that 68% of consumers said that the main reason they didn't purchase organic food was due to price. A study from UC Davis showed that prices for organic foods are 20% higher or more. If it takes a family of four $200 a week to feed itself, then it would cost $40+ a week to go organic. If you were to put $40 a week into your retirement plan and average a reasonable return of 8% for 30 years, you would have over a quarter of a million dollars.

Will Going "Green" Save You Green?
Some people value green products higher than other things and are therefore willing to pay the price. Other people also value green products higher than non-green products, and would choose them if the price was equal. Because the price isn't equal, tradeoffs with regard to what else they can do with their money become a factor; this is basic economics.

Unlimited wants and limited resources means that choices must be made. This doesn't make those that don't drive a hybrid or buy organic food bad people. It just means that they made different choices. That's what economics is all about. (For more on green investing, read Forget Green Stocks, "Green" Will Do.)

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