Extending emissions trading to municipal waste incineration: state of play and analysis
March 16, 2026
Europe has committed to one of the most ambitious climate agendas in the world: reaching carbon neutrality by 2050. Delivering on this promise requires significant emissions reductions across every part of the economy, from industry and transport to energy and buildings. At the heart of this strategy lies one of the European Union’s most powerful climate policy tools: the Emissions Trading System (ETS).
As the EU considers expanding this carbon market to new sectors, including municipal waste incineration, stakeholders across the waste management and energy industries are raising concerns. Their message is not one of opposition to climate action—far from it. Instead, they argue that extending the ETS to municipal waste incineration risks imposing substantial costs while delivering little environmental benefit.
Understanding this debate requires first understanding how the ETS works and why it has become such a central pillar of European climate policy.
Europe’s carbon market: how the ETS works
The EU Emissions Trading System is designed to reduce greenhouse gas emissions by putting a price on carbon. The system establishes a cap on the total amount of emissions that certain sectors can produce each year. Companies operating within these sectors must hold an allowance for every tonne of CO₂ they emit. Because allowances can be bought and sold, a carbon market emerges, creating financial incentives to reduce emissions.
If a company cuts its emissions, it can sell unused allowances. If it emits more than expected, it must purchase additional ones. Over time, the overall cap is tightened, reducing the number of available allowances and driving emissions downward.
Since its launch in 2005, the ETS has played a major role in reducing emissions in sectors such as power generation, heavy industry and aviation. Carbon prices have also risen significantly in recent years, reaching roughly €80 per tonne of CO₂, strengthening the economic signal to shift toward cleaner technologies and fuels.
Given its growing influence, European policymakers are now considering whether the ETS should be expanded further. One proposal currently under discussion would extend the system to municipal waste incineration as part of a broader reform expected by mid-2026.
A sector with limited flexibility
For many industries covered by the ETS, the carbon price works because companies can adapt their operations. They can improve efficiency, adopt cleaner technologies or switch fuels to reduce emissions. Municipal waste incineration, however, operates under fundamentally different conditions.
Waste-to-energy facilities are designed to treat residual household waste that cannot be recycled. The material they process is determined by municipal waste collection systems and public waste policies, not by market-driven choices. Operators cannot simply choose a lower-carbon input or replace their feedstock with a cleaner alternative.
As a result, the key behavioural mechanism behind the ETS—the ability to reduce emissions in response to rising carbon prices—is far more limited in this sector. Industry organizations therefore argue that extending the carbon market to municipal waste incineration would likely increase costs without significantly reducing emissions.
A potential multibillion-euro impact
At current carbon prices, the financial implications could be substantial. Estimates suggest that including municipal waste incineration in the ETS could generate around €2.2 billion in additional annual costs across Europe.
Those costs would not remain confined to the operators of waste-to-energy plants. They would ultimately be borne by local authorities responsible for waste management services, by citizens through local taxes and waste fees, and by energy consumers who benefit from the heat and electricity generated by these facilities.
In other words, the economic burden would fall largely on municipal budgets and households.
A growing concern across Europe
These concerns are not limited to a single country. Waste sector organizations from Austria, Spain, France, Italy, Poland, the Czech Republic and Slovakia have joined forces to raise the issue with the European Commission. In a joint letter addressed to the offices of Commission President Ursula von der Leyen and several Commissioners, they warn that extending the ETS to municipal waste incineration could undermine both local waste systems and broader climate objectives.
Their argument is that the ETS—effective in many industrial sectors—may simply not be the right instrument for municipal waste management.
Risks for the circular economy
One of the central worries is the potential disruption of Europe’s waste hierarchy. European waste policy prioritizes waste prevention, recycling and energy recovery over landfill disposal. Waste-to-energy plants therefore play an important role in managing non-recyclable waste while recovering energy that would otherwise be lost.
If significant carbon costs were suddenly applied to incineration, the economic balance between treatment options could shift. In some cases, landfill could become cheaper than energy recovery, potentially reversing decades of progress in reducing landfill dependency across Europe.
Such an outcome would run counter to the EU’s broader circular economy strategy, which aims to keep resources in use for as long as possible while minimizing environmental impact.
Implications for urban energy systems
The potential consequences extend beyond waste management. Waste-to-energy facilities are also a key contributor to district heating systems, particularly in urban areas.
In France, for example, heat recovered from these facilities accounts for about 30 percent of the renewable and recovered energy delivered through district heating networks. Much of this heat supplies public buildings and residential housing, including a significant share of social housing.
Over the past fifteen years, district heating networks in France have dramatically increased their share of renewable and recovered energy—from 31 percent in 2009 to 67 percent in 2024—thanks in part to the integration of waste-to-energy plants.
Introducing additional carbon costs could raise the price of heat delivered through these systems and weaken their competitiveness at a time when Europe is seeking to accelerate the transition away from fossil fuels.
Limited evidence of environmental gains
Another argument raised by industry stakeholders concerns the effectiveness of the policy. Some European countries have already experimented with including municipal waste incineration in carbon pricing mechanisms. According to studies cited by sector organizations, these experiences have not demonstrated clear reductions in emissions or significant improvements in recycling rates.
Research from the French waste federation FNADE suggests that applying the ETS to waste-to-energy plants would likely prove costly for citizens while delivering limited climate benefits.
Searching for more effective solutions
None of the organizations involved are questioning the need for ambitious climate policy. On the contrary, trade groups such as AMORCE emphasize their commitment to Europe’s decarbonization goals.
Their position is that policies must reflect the realities of each sector. Rather than extending the ETS to municipal waste incineration, they advocate for nationally adapted approaches that incorporate carbon signals while acknowledging the structural constraints of waste management systems.
These approaches could be developed within the framework of the EU’s Effort Sharing Regulation and in coordination with broader European initiatives such as the forthcoming Circular Economy Act, which is expected to become a key pillar of the EU’s decarbonization strategy.
A debate about the right tools for the transition
Europe’s journey toward climate neutrality will depend not only on ambitious targets but also on choosing the right policy instruments to achieve them. The debate over municipal waste incineration illustrates how complex that task can be.
For the waste sector, the challenge is ensuring that climate policy strengthens existing progress in circular economy and energy recovery rather than unintentionally disrupting it. As the European Commission prepares its ETS reform proposals for 2026, the coming months will determine how policymakers balance the need for stronger climate action with the practical realities of managing Europe’s waste and energy systems.
CPM
