UK ETS Extends to Waste Incineration: MRV Requirements for Energy-from-Waste Operators

Key Takeaways

• The UK ETS has been expanded to include waste incineration and energy-from-waste (EfW) facilities from 2026, bringing an estimated 50+ installations into the scheme
• Facilities with a total rated thermal input of 20 MW or more are in scope, covering the majority of commercial EfW plants in England, Wales, Scotland, and Northern Ireland
• Operators must implement monitoring, reporting, and verification (MRV) systems to track both fossil and biogenic carbon in waste streams
• No free allowances will be allocated to the waste incineration sector, meaning operators face the full cost of UK ETS allowances from day one
• The inclusion is expected to increase gate fees by £15–£30 per tonne of residual waste, with significant implications for local authority waste contracts

Why Waste Incineration Is Being Included

Waste incineration accounts for approximately 6 million tonnes of CO₂ annually in the UK, making it one of the largest point-source emission sectors not previously covered by the UK ETS. The sector’s inclusion aligns with the UK’s net zero trajectory and addresses a long-standing anomaly: industrial combustion was covered by the UK ETS, but burning waste — which involves the same chemical process — was exempt.

The government’s rationale is threefold:

• Creating a financial incentive to reduce residual waste volumes (by making disposal more expensive)
• Encouraging carbon capture, utilisation, and storage (CCUS) investment at EfW facilities
• Levelling the playing field between energy-from-waste and other forms of thermal power generation

Which Facilities Are in Scope

The UK ETS expansion covers installations that incinerate waste with a total rated thermal input of 20 MW or more. This includes:

• Municipal waste incinerators: Processing household residual waste under local authority contracts
• Energy-from-waste plants: Generating electricity and/or heat from waste combustion
• Combined heat and power (CHP) waste facilities: Where waste is the primary fuel
• Merchant waste incinerators: Processing commercial and industrial waste

Excluded from scope are:

• Facilities below the 20 MW threshold (typically smaller clinical or specialist waste incinerators)
• Cement kilns co-processing waste as fuel (already covered by UK ETS under industrial activity rules)
• Anaerobic digestion facilities (which produce biogas, not combustion emissions)
• Hazardous waste incinerators with dedicated regulatory regimes

The MRV Challenge: Fossil vs Biogenic Carbon

The most technically challenging aspect of ETS compliance for waste incineration is determining the split between fossil and biogenic carbon in the waste stream. This matters because only fossil CO₂ emissions require UK ETS allowance surrender; biogenic CO₂ (from paper, food waste, wood, natural textiles) is reported but does not carry an allowance obligation.

Waste Composition Analysis

Operators must conduct regular waste composition analyses to determine the fossil carbon fraction. The UK ETS monitoring and reporting regulation prescribes two approaches:

• Standard methodology: Using published waste composition data and standard emission factors. The Environment Agency provides default biogenic fractions for common waste categories (e.g., mixed municipal waste is typically assumed to be 50–55% biogenic by carbon content)
• Facility-specific methodology: Conducting periodic sampling and laboratory analysis of actual waste received. This involves sorting representative samples into material categories, determining the carbon content of each category, and applying facility-specific biogenic fractions

Facility-specific data will generally produce more favourable (lower fossil carbon) results than defaults, but the sampling programme must meet prescribed statistical requirements and be approved by the regulator.

Continuous Emissions Monitoring

Operators with continuous emissions monitoring systems (CEMS) already installed for environmental permit compliance will find these form the basis of their UK ETS monitoring. However, UK ETS monitoring requirements may require:

• Additional calibration and uncertainty assessments beyond permit requirements
• Integration of waste composition data with stack emission measurements
• Separate tracking of biogenic and fossil CO₂ streams
• Documentation of monitoring plan changes and their impact on reported emissions

No Free Allowances: The Cost Impact

Unlike most industrial sectors entering the UK ETS, waste incineration will receive zero free allowances. The government’s position is that free allocation would undermine the policy objective of reducing residual waste volumes. This means operators face the full UK ETS allowance cost from commencement.

At current UK ETS prices (£40–£55 per tonne of CO₂), and assuming a fossil carbon emission factor of approximately 0.3–0.5 tCO₂ per tonne of waste processed, the ETS cost per tonne of waste is estimated at £12–£28. This will flow through to gate fees.

The impact varies significantly by waste composition:

• High-plastic waste streams (commercial/industrial): Higher fossil carbon fraction, higher cost per tonne
• Mixed municipal waste: Moderate fossil carbon fraction, moderate cost impact
• Pre-treated waste (RDF/SRF): Variable composition, but typically higher calorific value and higher fossil fraction

Impact on Gate Fees and Waste Contracts

Gate fee increases will ripple through the waste management sector:

• Local authorities with long-term PFI/PPP waste contracts will need to negotiate how ETS costs are shared between the authority and the operator
• Merchant operators will pass costs through to commercial customers, potentially making landfill (with its own tax regime) relatively more competitive for some waste streams
• Waste producers face stronger financial incentives to reduce residual waste, increase recycling rates, and improve waste segregation

Interaction with Resources and Waste Strategy

UK ETS inclusion of waste incineration aligns with the broader Resources and Waste Strategy objectives of reducing residual waste and moving up the waste hierarchy. However, there are tensions:

• The UK currently lacks sufficient recycling infrastructure to divert all recyclable material from residual streams
• EfW capacity has expanded significantly over the past decade, with some facilities locked into long-term waste supply contracts
• The concurrent introduction of Extended Producer Responsibility (EPR) for packaging and the Deposit Return Scheme (DRS) will change waste composition over time, potentially increasing the biogenic fraction of residual waste

Practical Steps for EfW Operators

• Apply for a UK ETS permit: Contact the relevant regulator (Environment Agency, SEPA, NRW, or NIEA) to register your installation
• Develop a monitoring plan: Prepare a UK ETS-compliant monitoring plan covering emissions calculation methodology, waste composition analysis, and data management
• Invest in waste composition analysis: Establish a robust sampling programme to demonstrate your actual fossil carbon fraction rather than relying on conservative defaults
• Review commercial contracts: Assess whether existing gate fee structures and waste supply agreements allow for ETS cost pass-through
• Evaluate CCUS feasibility: Carbon capture at EfW facilities may become economically viable given the combined revenue from ETS savings and potential negative emissions credits for biogenic carbon capture
• Engage your verification body: Appoint an accredited verifier early — capacity will be constrained as the sector scales up ETS compliance

Need Help with UK ETS Waste Sector Compliance?

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