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From monitoring to surrender obligations
The proposed extension has been some time in the making. Since 2024, emissions from municipal waste incineration installations have already been subject to monitoring, reporting and verification obligations. The Commission was required to assess, by 31 July 2026, whether the full inclusion of such installations in the EU ETS would be feasible. On the basis of that assessment, the Commission now considers it appropriate and feasible to amend the ETS Directive, Directive 2003/87/EC, and include emissions from municipal waste incineration installations in the EU ETS.
The proposal introduces a new activity for waste incineration and waste co-incineration in Annex I to the ETS Directive. The scope is aligned with the definitions of waste incineration plants and waste co-incineration plants under Directive 2010/75/EU on industrial emissions. It covers installations for non-hazardous waste with a capacity exceeding 3 tonnes per hour.
Hazardous waste incineration, meaning incineration or co-incineration plants predominantly treating hazardous waste, should remain excluded from the EU ETS. According to the Commission, the carbon price signal is not expected to incentivise cost-effective decarbonisation at such installations. Strict regulatory, technical and operational requirements limit alternative treatment options for hazardous materials that cannot be safely recycled, recovered or treated by other means.
To ensure a smooth transition of the sector into the EU ETS, the surrendering of allowances by municipal waste incineration installations becoming subject to the system from 2031 onwards should be gradually introduced in respect of verified emissions reported for the period from 2031 to 2034. This staged integration should not apply to installations already included in the EU ETS.
The number of allowances added to the total Union-wide quantity of allowances in respect of the sector should be commensurate with the phase-in trajectory from 2031 to 2034. This would be equivalent to 25% of the relevant total in 2031, 50% in 2032, 75% in 2033 and 100% as of 2034, subject to the applicable linear reduction factor. As from 2035, municipal waste incineration installations should surrender a number of allowances corresponding to all of their verified emissions reported in the preceding year.
Why include waste incineration in the EU ETS?
The underlying rationale is that a carbon price can strengthen incentives to move waste management higher up the waste hierarchy. The Commission expressly links the proposed extension to circularity. According to the proposal, carbon pricing for waste incineration should support waste prevention, preparation for reuse, separate collection, sorting and recycling. The ETS would therefore not only incentivise emission reductions at installation level, but also contribute to changes across the wider waste value chain.
This is important because emissions from waste incineration are not determined solely by the incineration process itself. Upstream factors also play a significant role, including the availability of recycling and composting infrastructure, the effectiveness of separate collection schemes, the behaviour of households and businesses, and the design and lifespan of products. The Commission therefore emphasises that the extension of the EU ETS should be accompanied by broader circular economy measures.
The Dutch Emissions Authority summarised the proposal in practical terms: the Commission proposes to bring waste incineration installations under the EU ETS from 2031 onwards, while allowing Member States to request an exemption until 2035 under certain conditions. The Commission also introduces monitoring and reporting obligations for methane emissions from landfills.
Costs, contracts and local waste charges
For municipalities, waste companies and other stakeholders, the proposed extension may have significant practical consequences. The key change is that CO₂ emissions from waste incineration would carry a direct carbon cost. That cost is likely to become relevant in existing and future waste treatment contracts, tariff structures and the financial relationship between municipalities, waste operators and households.
The Commission expressly recognises that local authorities and waste incineration operators need time to prepare. The 2031 start date and the phased introduction up to and including 2034 are intended to allow for technical and administrative preparation, including the development of monitoring and reporting rules better tailored to municipal waste incineration. The transitional period should also allow local authorities and incinerators to adjust their contractual arrangements.
The proposal also makes clear that the carbon price signal should be reflected in pricing mechanisms that incentivise waste prevention and better sorting. The Commission refers to measures such as modulated gate fees, pay-as-you-throw schemes, weight-based collection, smart bin collection schemes, deposit return schemes and mandatory separate collection for specific waste streams. Member States should be able to use ETS revenues to support local authorities in implementing such circular economy measures.
Avoiding unintended consequences
A key issue is the risk of waste diversion. If waste incineration becomes more expensive, there may be an incentive to divert waste to landfill or to other routes that are lower in the waste hierarchy. The Commission acknowledges this risk and stresses that the extension of the EU ETS should be accompanied by effective measures to continue reducing landfilling.
Temporary opt-out until 2035
The proposal includes a temporary opt-out possibility. A Member State may exempt installations falling within the waste incineration and waste co-incineration activity from the obligation to surrender allowances for emissions of a reference year up to and including 2035, provided that it demonstrates compliance with at least two of three conditions. These conditions concern: (i) a national carbon tax covering the relevant activity, with the tax effectively paid by the regulated entity exceeding the average EU ETS auction clearing price for the relevant year, adjusted for the gradual phase-in applicable to the sector; (ii) having policies in place and being on track to meet the EU municipal waste recycling targets; and (iii) having policies in place and being on track to meet the municipal waste landfill target. The Member State must notify its request to the Commission by 31 July 2029 and indicate the corresponding number of allowances to be cancelled. Installations benefiting from the opt-out would remain fully subject to the applicable monitoring, reporting, verification and accreditation obligations.
What happens next?
For the time being, this remains a proposal, which will need to be considered and agreed by the European Parliament and the Council before the proposed rules can enter into force. The proposal may therefore be amended during the legislative process. The surrender obligation would be phased in from 2031, increasing from 25% of verified emissions reported for 2031 to 100% of verified emissions reported for 2034 and each year thereafter.
Operators of waste incineration and waste co-incineration installations, local authorities and other parties in the waste value chain should therefore assess the potential implications of the proposal. The start from 2031 and the gradual phase-in are intended to allow for technical and administrative preparation and to provide planning and investment predictability for operators and local authorities, including for the adjustment of contractual arrangements between local authorities and incinerators. The carbon price signal should also be reflected in pricing mechanisms supporting waste prevention, reduction, sorting and recycling. Technologies, processes and techniques that directly reduce emissions from municipal waste incineration installations, in particular carbon capture, would be eligible for support from the Industrial Decarbonisation Bank, the Innovation Fund and the Modernisation Fund, with a view to accelerating industrial decarbonisation.
