In considering the eco-friendliness of a product, it’s necessary to consider several factors: 1) are you concerned about how big a carbon footprint you will be creating by buying the products? 2) are you concerned about how the animals/plants are treated? and 3) is it a sustainable source of material?
1) Buying animal products is almost always harder on the environment than buying plant products because they simply require more energy: “wool requires almost four-times the amount of land as cotton to achieve equivalent production mass” (see URL).
2) The idyllic image of sheep grazing the countryside can also have its dark side, as seen by the sheep-shearing practices in australia: http://www.mnn.com/lifestyle/natural-beauty-fashion/stories/whats-the-most-eco-friendly-form-of-wool. However, the treatment of animals depends entirely on who is raising the animals. When in doubt, go local and look for sheep products that come from animals that are being grass-fed on an open range.
3) Raising sheep may not be as sustainable as growing native plants that produce fibers. However, as long as they are provided with enough land so that they don’t overgraze, they are relatively ecofriendly animals.
In conclusion, it depends on what you determine to be ecofriendly. In comparison to cows being turned into leather, raising sheep to be sheared for their wool is much more environmentally and animal friendly. In comparison to raising plant fibers like cotton or hemp, the earth would probably be happier if we went around in discarded leaves.
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