Thursday, August 10, 2006

Green Buying Decisions: Purchase Price vs. Operating Cost

It has often been said that one of the major hindrances to people buying clean, efficient, money-saving, and pollution-reducing technologies - be they solar electric systems, energy efficient appliances, or hybrid vehicles - is their higher purchase price.

This even though the operating cost (and thus lifecycle cost, from purchase to retirement) of cleaner technologies is often considerably lower.

Take for example the simple purchase of a compact fluorescent light bulb. Even back in 2001, when they were much more expensive and not as efficient, author, Andy Kerr, noted that an $8.99 compact fluorescent bulb used 11 hours a day (e.g., an outdoor light kept on for security reasons) would save the buyer $10.84 of electricity annually, compared to a typical $0.40 incandenscent bulb. That, Kerr noted, "works out to an annual return on investment of 121 percent over a one year period. Do you have any (legal) investments that pay over 100 percent annually"?

This 121% annual return didn't even finish covering the full savings of using that cleaner, pollution-reducing compact fluorescent! For the more efficient bulb lasts 10 times longer, so you can also add on savings such as less time spent purchasing new bulbs, and less money spent on gas needed for the trip to the store to purchase new bulbs (the way gas prices are going, you probably already have to spend more on the gas than on the bulb, itself!)

Obviously now, with compact fluorescents often down below $2/bulb (e.g., in the multi-pack at Costco), and energy costs rising, the return is much greater! While the initial purchase price of incandescent light bulbs is still lower, both the operating cost and the lifecycle cost of compact fluorescents constitute huge savings for consumers and businesses alike!

Does this apply to bigger purchases. Like buildings (huge purchases!)? A 2003 State of California report on The Costs and Financial Benfeits of Green Buildings found that while the cost of building green was $4 greater per square foot over 20 years, the energy savings alone were $5.79 per square foot, exceeding the costs. Water savings tacked on an additional $0.51 per square foot, and harder to measure "productivity and health value" was over $35 per square foot. As the report states, "total financial benefits of green buildings are over ten times the average initial investment required to design and construct a green building."

So then why do most people continue to focus on purchase price in making their buying decisions?

I'll bet if annual operating cost was stuck on a product right next to the purchase price, and people could see the entire lifecycle cost, their purchasing decisions would change considerably! This might already be starting to happen with some major appliances, where the yellow Energyguide tag lists the operating cost. New fridge--do you go with the much cheaper $500 energyhog or the more expensive $800 saver? Look at the annual energy cost and figure out how much money you'd have left in your pocket after a few years with the cleaner model (which would also leave you with the bragging rights that you get for doing your part to help fight global warming!) If the difference in operating cost is $100 per year, for example, you'd make your money back in 3 years, and after that, it's money in your pocket with bragging rights to boot!

I wish there were a web site that we could go to for quickly finding the operating cost of all sorts of common consumer and industrial items. That way when we're making a purchasing decision and considering the costs vs. benefits of going green, we'd be able to very quickly figure out how much we'd save on operating costs by spending a little more on purchase price!

There are already some resources that can help with this, that reveal the operating costs of:
  • Cars and trucks:
  • EnergyStar provides the ability to compare things like energy use of appliances, electronics an other items, but not necessarily a clear, straightforward comparison of operating costs among all items.
  • As noted earlier (and demonstrated in the image above), the yellow tag on many applicances reveals their annual operating cost. When shopping, don't forget to tally that up with the purchase price and figure out how much you'd save with the more efficient model over the lifetime of your appliance!
  • I'm sure there are more out there...
If any of you out there know of good reasources for quickly comparing the operating costs of everything from appliances to cars to homes and electronics, please post them in the comments!

It would be great if we could inspire the creation of a web site/database for comparing the purchase prices vs. operating costs of all sorts of paired/grouped greener vs. conventional items.

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