The current needs of sustainable urban development give an effort to focus on environmental issues during decision making. In urban areas major environmental concerns are usually related to air quality problems caused by transport activity. Another crucial issue concerns increasing amounts of waste and inefficient waste management. The aim of the paper is to provide a methodology for the decision making process to assess integrated waste and energy management in urban areas. The methodology is based on the application of cost-benefit analysis including an impact pathway approach to evaluate the economic value of environmental aspects of the waste-to-energy process route. The study covers the whole waste-to-energy system including waste management, energy production and energy end-consumption alternatives. Cost-benefit analysis integrated with impact pathway approach was chosen for this analysis as an effective tool that is used to guide decisions about the prioritization of different investment options. This approach allows including not only the investment costs and the economic value of the outcomes but it also provides a wide range of environmental aspects that have economic valuation. The cost-benefit analysis of the integrated waste-to-energy concept is demonstrated on a case study of Valmiera city in Latvia. The results show that operating costs of fossil fuel buses are higher than biomethane fuel buses if the external operating costs and benefits are taken into account. The results from the Valmiera case study show that the total operating costs, including externalities can be reduced.