The paper develops the integrated inventory models with imperfect quality and environmental impact. Specially, the capital investments strategies in process quality improvement are adopted. In addition, we further consider the operations decisions in ordering, production, and transportation involving carbon emission costs. An efficient algorithm is presented to determine the optimal order quantity, process quality, shipment size and the number of shipments that minimizes the total expected cost of the integrated vendor-buyer inventory model in a coordinated supply chain. This integrated inventory model is useful particularly for JIT inventory systems where the vendor and the buyer form a strategic alliance for profit sharing. Finally, a numerical example is provided to illustrate the theoretical results. Sensitivity analysis is carried out to investigate the model parameters effects on the optimal solution. Managerial implications are also included.