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The use of appropriate thermal insulation is one of the fundamental methods for reducing a building’s energy demand. The article aims to assess the ecological effectiveness of reducing thermal energy losses through the external brick walls of a model single-family building. Environmental impacts resulting from the use of three alternative heat sources (a condensing gas boiler, an oil boiler, and a brine-to-water heat pump) and two types of insulation materials (EPS with recycled material and mineral wool) were determined. Oil heating has the highest combined environmental impact (EUR 4.392). Using EPS as an insulating material generates a lower environmental impact compared to mineral wool (EUR 2.846 vs. EUR 3.775). The impact of climatic conditions was also considered, taking into account seven building locations that correspond to the diverse climatic conditions found in different regions of Poland. The obtained values indicate a clear impact of both the thickness of the thermal insulation layer and the building’s location on the amount of heat loss and, consequently, environmental costs. In locations with higher average annual outdoor temperatures, the determined heat losses are approximately 20% lower. The most significant environmental benefits are observed when switching from no insulation to 150–200 mm of insulation. The results indicate that the environmental benefits resulting from reduced heat losses achieved through the use of thermal insulation are quickly offset by the externalities associated with the production of the insulation. For a thickness of 50 mm, the benefit–cost ratio (B/C) ranges from 1.7 to 8.4, indicating that the environmental benefits achieved by reducing heat loss are approximately two to eight times greater than the costs associated with producing the material. The B/C ratio decreases with increasing insulation thickness, regardless of the building’s location and the type of heat source. As the thickness increases to 100 mm, the ratio drops to 1–5. In the temperate climate zone, where Poland and others UE’s countries are located, a 100–150 mm layer of insulation offers the best compromise between environmental benefits and environmental costs. The results demonstrate the validity of using building insulation and may serve as an argument in environmental policy for supporting it with budgetary funds in Poland and the European Union.