This study compares environmental and economic impacts of using nanofluids to enhance solar collector efficiency as compared to conventional solar collectors for domestic hotwater systems. Results show that for the current cost of nanoparticles the nanofluid based solar collector has a slightly longer payback period but at the end of its useful life has the same economic savings as a conventional solar collector. The nanofluid based collector has a lower embodied energy (approximately 9%) and approximately 3% higher levels of pollution offsets than a conventional collector. In addition if 50% penetration of residential nanofluid based solar collector systems for hot water heating could be achieved in Phoenix, Arizona over 1 million metric tons of CO2 would be offset per year.