(1) The use of renewable energy for power and heat supply is one of the strategies to reduce greenhouse gas emissions. As only 14% of German households are supplied with renewable energy, a shift is necessary. This shift should be realized with the lowest possible environmental impact. This paper assesses the environmental impacts of changes in energy generation and distribution, by integrating the life cycle assessment (LCA) method into energy system models (ESM). (2) The integrated LCA is applied to a case study of the German neighborhood of Herne, (i) to optimize the energy supply, considering different technologies, and (ii) to determine the environmental impacts of the base case (status quo), a cost-optimized scenario, and a CO2-optimized scenario. (3) The use of gas boilers in the base case is substituted with CHPs, surface water heat pumps and PV-systems in the CO2-optimized scenario, and five ground-coupled heat pumps and PV-systems for the cost-optimized scenario. This technology shift led to a reduction in greenhouse gas emissions of almost 40% in the cost-optimized, and more than 50% in the CO2-optimized, scenario. However, technology shifts, e.g., due to oversized battery storage, risk higher impacts in other categories, such as terrestrial eco toxicity, by around 22%. Thus, it can be recommended to use smaller battery storage systems. (4) By combining ESM and LCA, additional environmental impacts beyond GHG emissions can be quantified, and therefore trade-offs between environmental impacts can be identified. Furthermore, only applying ESM leads to an underestimation of greenhouse gas emissions of around 10%. However, combining ESM and LCA required significant effort and is not yet possible using an integrated software.