Waste incineration EU ETS: free allowances could blunt the new carbon price – Zero Waste Europe’s analysis

From 2031, burning municipal waste may finally be covered by the EU’s carbon market. Bringing waste incineration EU ETS coverage into force is a long-awaited step: for the first time, the fossil CO₂ released when plastics and other fossil-based materials are burned would carry a price. Yet according to a policy briefing published by Zero Waste Europe (ZWE) in September 2026, two details of the proposal could let incinerators avoid a large share of that carbon price for years. Here is what the report says, how the numbers are built, and what it means in practice.

In short: Waste incineration EU ETS coverage is set to start in 2031, but a gradual phase-in and free allowances for plants supplying district heating until 2040 could keep the real carbon cost far below the nominal one. ZWE’s model suggests a high-heat incinerator would pay under €6 per tonne of waste in 2031 instead of the full €40.

How emissions trading works, and why it matters for incineration

The EU Emissions Trading System (ETS) runs on a simple principle: anyone who emits CO₂ must surrender one allowance (EUA) for every tonne. Allowances are mostly bought at auction or on the market, which puts a price on pollution. Since 2005 the system has covered power generation and energy-intensive industry – the European Commission’s ETS page gives an overview.

Incineration has so far been left out. Yet when mixed waste goes into the furnace, most of its climate impact comes from fossil-based materials, mainly plastics. Food scraps, paper and other organic materials are treated as carbon-neutral under EU rules; plastics are not. Published estimates range from 0.4 to 0.7 tonnes of fossil CO₂ per tonne of waste; both the Commission and ZWE use 0.5 tonnes.

That gives the key figure: at an allowance price of around €80 (roughly where the market traded through summer 2026), the theoretical carbon cost of one tonne of burned waste is about €40.

Waste incineration EU ETS: what the European Commission proposes

On 17 July 2026 the Commission published its ETS review package (COM(2026) 616). It would bring non-hazardous waste incineration and co-incineration installations above 3 tonnes per hour into the system – a threshold that captures practically every municipal-scale plant.

The key points:

• Late start: 2031, four years later than the 2028 date foreseen in the current ETS Directive’s review clause.
• Gradual surrender obligation: operators surrender allowances for 25% of emissions in 2031, 50% in 2032, 75% in 2033, and 100% only from 2034.
• Free allowances for district heating: plants supplying district heating receive free allowances for their heat output, decreasing in equal steps after 2030 and reaching zero only in 2040.
• National opt-out: a Member State can seek an exemption by meeting two of three conditions – a national carbon tax on incineration above the ETS price, being on track for the 60% (2030) and 65% (2035) recycling targets, or being on track for the 10% landfill cap by 2035.
• Outermost regions: installations in the EU’s outermost regions would be exempt until the end of 2035.

We covered the proposal and the industry’s reaction (CEWEP, ITAD, BDSAV) in detail in our earlier analysis.

Why the price signal gets weaker

ZWE does not criticise bringing incineration into the ETS – it explicitly welcomes it as a necessary and overdue step. The problem is that two concessions stack on top of each other and together sharply reduce the price operators actually pay.

Factor one: the slow phase-in

Because of the gradual introduction, the gross cost per tonne (at €80/tCO₂) develops as follows:

• 2031: €10
• 2032: €20
• 2033: €30
• 2034 onwards: €40

This alone means the signal is weak in exactly the years when operators should be investing in sorting lines and plastics removal to prepare for 2034.

Factor two: free allowances for heat

Around 60% of European waste-to-energy plants operate in combined heat and power (CHP) mode, supplying district heating. An important detail: electricity generation is not eligible for free allocation – only exported heat is, calculated against a heat benchmark currently set at 31.2 tCO₂ per terajoule (0.0312 t/GJ).

So the more heat a plant feeds into a district-heating network, the more free allowances it receives and the lower its actual carbon cost. The Commission text says this free allocation decreases by equal amounts after 2030 until 2040; ZWE models this as a linear 10-percentage-point annual reduction (2031: 90%, 2032: 80%, 2033: 70%, 2034: 60%). During the phase-in, free allocation is also prorated to the applicable share of the surrender obligation.

The bottom line: when incinerators reach 100% surrender in 2034, district-heating free allocation still stands at 60% of its 2030 level.

Let’s do the maths: what does a plant pay per tonne of waste?

ZWE built a transparent, deliberately simplified model for three plant archetypes:

• electricity-only plant: exports no heat, so receives no free allowances;
• average CHP plant: exports about 4.5 GJ of heat per tonne;
• high-heat CHP plant: exports about 7.5 GJ per tonne (typical of well-integrated district-heating schemes).

Worked example for an average CHP plant in 2031:

1. Gross cost: 0.5 t CO₂ × 25% × €80 = €10
2. Free allowances: 4.5 GJ × 0.0312 t/GJ × 90% × 25% ≈ 0.032 t CO₂, worth ≈ €2.5 at €80
3. Effective cost: 10 – 2.5 ≈ €7.5 per tonne

The same in 2034: from a gross cost of €40, free allowances of 4.5 × 0.0312 × 60% × 80 ≈ €6.7 are deducted, leaving about €33.

Modelled results per tonne:

• 2031 – electricity-only: €10.0 · average CHP: €7.5 · high-heat CHP: €5.8
• 2032 – electricity-only: €20.0 · average CHP: €15.5 · high-heat CHP: €12.5
• 2033 – electricity-only: €30.0 · average CHP: €24.1 · high-heat CHP: €20.2
• 2034 – electricity-only: €40.0 · average CHP: €33.3 · high-heat CHP: €28.8

The most striking result: a high-heat plant would pay less than €6 per tonne of waste in 2031, while the full theoretical cost is €40.

ZWE stresses that this is an illustrative model, not a plant-by-plant forecast. Actual allocation will also depend on the benchmark values applicable from 2031 (not yet published), eligible heat output and other installation-specific factors.

Why this matters for investment

The report’s central comparison: secondary sorting of residual waste – mechanically pulling recyclables and fossil plastics out of mixed waste just before incineration – costs roughly €39–50 per tonne.

If an incinerator had to pay €40 per tonne for its CO₂, sorting could pay off on avoided ETS costs alone, before counting the value of recovered materials. Why mixed waste sorting is a missing link for meeting recycling targets was the subject of an earlier ZWE–Reloop report we wrote about. However:

• electricity-only plants only reach that level in 2034;
• CHP plants stay well below it throughout the phase-in, especially those exporting large volumes of heat.

When the effective carbon cost stays well below the cost of abatement, operators are likely to treat the ETS as a modest operating cost rather than a reason to invest.

ZWE flags two further risks. First, incinerator heat gains an edge in district-heating markets over genuinely low-carbon options such as geothermal, recovered industrial waste heat and large heat pumps – and district-heating investment decisions in the early 2030s lock in infrastructure for decades. Second, Europe already has an estimated 60 million tonnes of excess incineration capacity, possibly over 70 million tonnes including planned and under-construction plants. A weak price signal could keep that overcapacity alive – and it has to be fed with waste.

What municipalities and waste operators can do now

Notably, the report does not treat secondary sorting as the first-choice response – it is one of the costlier tools. A 2025 industry study (Suez) prepared for the UK emissions trading scheme, which will cover energy-from-waste from 2028 without free allocation, used 30 million waste composition records and found the most effective measures follow the waste hierarchy and need no new technology:

• Prevention and re-use: waste that is never generated carries no treatment or carbon cost.
• Better door-to-door separate collection: doable with existing vehicles and crews; in the model, local authorities could offset 37–56% of their additional costs this way.
• Less frequent residual collection or smaller bins: could cut residual waste by up to 6% on its own.
• Civic amenity sites: one audit found 58% of black-bag waste brought to recycling centres was potentially recyclable.
• Targeting fossil-carbon-rich streams: plastic packaging, WEEE, synthetic textiles and absorbent hygiene products. Textiles can contain 60–70% fossil carbon.
• Acting early: while the carbon price is still low, savings can be reinvested in further prevention and recycling.

What this means for Hungary

The proposal matters for Hungary in several ways. The Budapest Waste-to-Energy Plant and other incinerators connected to district heating would fall into the CHP category – exactly the plants that would benefit most. As for the national opt-out, given Hungary’s current recycling and landfill rates, meeting the conditions does not look close, so Hungarian incinerators would most likely fall under the EU-wide rules.

A rising real price for incineration affects the whole Hungarian system: the route of refuse-derived fuel (RDF) made from mixed waste, MOHU’s concession system and the cost of municipal waste services. The less plastic and textile ends up in the residual bin, the smaller the future carbon bill – which ultimately depends on household separate collection too.

ZWE’s recommendations

Based on its press release and briefing, ZWE asks EU decision-makers to:

• drop the gradual phase-in of the surrender obligation so the price is not artificially suppressed in the early years;
• end free allowances for municipal waste incinerators by 2034 at the latest, when the full surrender obligation applies, instead of 2040;
• remove the Member State opt-out, which would create different carbon costs across Europe and distort competition;
• direct ETS revenues from incineration to prevention, re-use, separate collection, collection of fossil-carbon-intensive streams (textiles, WEEE), secondary sorting where needed, and genuinely low-carbon district heating;
• publish the heat and fuel benchmarks applicable from 2031 as early as possible, so everyone can see the real strength of the price signal before trilogue negotiations.

Conclusion

Bringing incineration into the ETS is a turning point: the polluter-pays principle finally reaches the climate impact of burning plastics. ZWE’s analysis shows, however, that the details decide how strong the incentive will be. If plants supplying district heating – the majority in Europe – pay a fraction of the nominal price for years, investment in sorting, recycling and prevention may be delayed. The proposal now goes to the European Parliament and the Council, so the final rules may still change.

Frequently asked questions about waste incineration EU ETS coverage

When will waste incinerators have to buy carbon allowances?

Under the Commission’s proposal, from 2031. That is four years later than the earlier 2028 date. The surrender obligation rises gradually: operators cover 25% of emissions in 2031, 50% in 2032, 75% in 2033 and the full amount only from 2034. The rules apply to installations with a capacity above 3 tonnes of waste per hour.

How much would the carbon price add to burning a tonne of waste?

In theory, about €40 per tonne. Burning one tonne of mixed waste releases around 0.5 tonnes of fossil CO₂, and an allowance costs roughly €80. Because of the gradual phase-in and free allowances, however, the amount actually paid in the early years could be only a fraction of that figure.

Why do incinerators supplying district heating get free allowances?

Because the proposal extends the existing free-allocation rules for district heating to them. Allowances are granted only for exported heat, not for electricity. This free allocation decreases in equal steps after 2030 and disappears only in 2040, so in 2034 plants would still receive 60% of the 2030 level.

Why is a low effective carbon cost for incinerators a problem?

Because it removes the business case for cutting emissions. Secondary sorting of residual waste costs €39–50 per tonne; if an incinerator pays far less than that for its CO₂, it has little reason to invest. A weak signal could also prolong Europe’s estimated 60 million tonnes of excess incineration capacity.

What can municipalities do to reduce ETS costs?

The most effective steps are waste prevention and better door-to-door separate collection. A UK study found improved recycling could offset 37–56% of local authorities’ additional costs. Less frequent residual collection, sorting at recycling centres and targeted collection of plastics, WEEE and synthetic textiles, which are high in fossil carbon, also help.

Source:

Zero Waste Europe, The missing carbon price signal – How free allocation could blunt the EU ETS signal for incineration (policy briefing, September 2026, author: Janek Vähk); ZWE press release, 10 September 2026.