This study aims to develop a comprehensive model for life cycle assessment and environmental damage cost calculations considering avoided emissions in different waste management scenarios using the system dynamics (SD) approach. Our analysis reveals that under the business-as-usual (BAU) scenario for the period 2020–2050, the total net greenhouse gas (GHG) emissions reach 12.5 Mt, with the highest environmental damage cost being USD 689 million. In contrast, an integrated management strategy encompassing recycling, composting, anaerobic digestion, and incineration results in a 195% reduction in net GHG emissions compared to the BAU Scenario. Concurrently, the environmental damage cost drops to USD 277 million, incorporating USD 347 million in savings, leading to a net environmental damage cost of USD −71 million. The findings affirm that accounting for emissions avoided across various treatment methods offers a more accurate estimate of environmental damage costs. Additionally, policies centered on integrated waste management are more likely to achieve sustainability. The study also demonstrates the utility of the SD approach in providing a holistic view of waste management systems and in evaluating the effectiveness of various policy strategies for sustainable waste management.