Implications of the Expansion of the Emissions Trading Scheme (ETS) to the Waste Sector

The planned expansion of the UK Emissions Trading Scheme (ETS) to include emissions from waste incineration and energy-from-waste (EfW) facilities from 2028 will have significant implications for UK local authorities.

This was one of the main topics of discussion at the recent North West Recycling Forum (NWRF) we attended with representatives from councils across the region. There officers discussed the forthcoming legislation and the uncertainty in funding, while emphasising the renewed importance of resident communication and behaviour change to promote reuse, increase recycling participation and reduce contamination.

The ETS is one of the UK’s flagship decarbonisation policy instruments. It currently covers the heavy industry, power and aviation sectors, which make up approximately 25% of UK territorial emissions. In 2023 the government announced its intention to expand the scope of the UK ETS to waste incineration and energy from waste (EfW) from 2028, preceded by a 2-year MRV transitional period. By setting a limit (“the cap”) on emissions from these sectors, and creating a carbon price, the scheme incentivises investment in decarbonisation in line with climate targets across the UK.

Financial pressure on council budgets

The most immediate impact for local authorities is financial. Once waste incineration is brought into the ETS in 2028, incineration facility operators will be required to purchase carbon allowances for their emissions. These costs are widely expected to be passed on through higher gate fees, which councils pay to dispose of residual waste.

Modelling undertaken by the Local Government Association (LGA) suggests councils could face hundreds of millions to over a billion pounds of additional costs from ETS inclusion between 2028 and 2036, with cumulative costs potentially reaching £6.5bn by 2036, and councils may have limited ability to absorb or avoid this.

When surveyed by the LGA last year, 93% of councils said these costs could not be met within existing waste and recycling budgets. With local authority finances already under strain, the additional burden risks crowding out spending on other essential services or forcing difficult decisions about council services and tax.

There is also concern that funding for waste reduction, reuse, and recycling initiatives could be squeezed at precisely the moment when greater investment is needed to reduce residual waste volumes.

Limited control over emissions drivers

A key challenge for local authorities is that they have limited control over the factors driving ETS costs. Councils are legally required to collect household waste regardless of its composition, and much of the carbon content of residual waste, particularly plastics, is determined by product design and consumer behaviour rather than local waste services.

In the run up to 2028, we expect to see a renewed emphasis from council waste teams on service design, reuse and recycling participation. While this is already part of every council’s strategy, the increased return on investment from the benefits of behaviour change should unlock the funding that has until now prevented many councils from investing in technology to support residential education and engagement campaigns.

Solutions such as Routeware’s Customer Education and Outreach are already used by many councils to supplement, or even replace, traditional paper leaflets with digital website tools and apps that can help them reach new audiences in more engaging and cost-effective ways.

These applications show residents what goes in what bin at the moment they are recycling, on smartphone or tablet, to help them act correctly and reduce costly contamination. One popular add-on is an interactive educational Online Sorting Game that teach people how to recycle materials properly in their area in a fun and accessible way.

Planning, risk and unintended outcomes

The market-based nature of the ETS also introduces additional price volatility into the council planning and budgeting process. Fluctuating carbon prices will make it difficult for councils to forecast waste disposal costs accurately, and will further complicate budget planning and financial risk management.

There are also concerns about unintended outcomes. If incineration becomes significantly more expensive, waste may be diverted to alternative routes, such as landfill, and these shifts could undermine the environmental objectives of the ETS.

The need for complementary reform

Most local authorities we speak to support the principle of reducing emissions from waste. However, many argue that expanding the ETS to the waste sector must be accompanied by wider reforms, including the faster and fairer implementation of Extended Producer Responsibility (EPR) funding the reinvestment of ETS revenues into local waste and decarbonisation infrastructure.

Without such measures, there is the potential that the costs of decarbonisation fall disproportionately on local authorities and households, rather than driving the systemic change the policy is intended to achieve.