ETS reform agreed: monitoring of emissions from waste incinerators from 2024, ETS2 from 2027

On 18 December 2022 the European Parliament and the EU Council reached a provisional agreement on the reform of the EU emissions trading system (ETS). The target for the sectors covered by the system was raised to a 62% emission reduction by 2030 compared with 2005. A gradual phase-out of free allowances by 2034, the inclusion of maritime transport in the system and the creation of a new system for buildings and road transport (ETS2) from 2027 were agreed. For the waste sector it is significant that municipal waste incinerators will be subject to an emission monitoring obligation from 2024.

What is changing

The ETS is a system in which companies buy CO₂ emission allowances, and their number is falling. The reform tightens the reduction of the cap, reduces the free allocation and introduces CBAM as a safeguard against carbon leakage. The new ETS2 will cover fuels used in building heating and road transport, and its start is planned for 2027 (with the possibility of delay if energy prices remain exceptionally high). It is accompanied by the Social Climate Fund, which is meant to soften the impact on households.

For municipal waste incinerators the agreement provides for emission monitoring, reporting and verification from 2024, and the Commission is to assess the possibility of including them in the emissions trading system; the assessment is to be ready by mid-2026.

Significance for the industry in Poland

Poland already has several large municipal waste thermal treatment installations, and more are under construction or planned. Subjecting them to an emission monitoring obligation, and potentially in future also to charges for CO₂ emissions from the fossil fraction of waste (mainly plastics), may raise waste management costs and increase the motivation for separate collection and recycling.

For waste management this means a potential turn towards a higher value of recycling and biowaste fermentation at the expense of incineration. As incineration becomes more expensive, it pays more to collect kitchen and green waste separately and send it to biogas plants or composting plants.

At the same time, rising allowance prices and the inclusion of building heating in ETS2 raise the attractiveness of heat from biogas and biomethane.

What emission monitoring changes

The obligation to monitor and report emissions makes it possible to estimate how much CO₂ comes from the fossil fraction of waste, mainly plastics, and how much from the biogenic fraction, e.g. paper and kitchen waste. The results will be the basis for a decision on possibly including incinerators in the emissions trading system. For local governments and operators it is significant that costs may be affected both by the allowance price and by the composition of the waste sent for incineration.

What next

The agreement must be formally adopted by Parliament and the Council, which is to happen in 2023. In Poland the key issues will be implementing the rules on monitoring emissions from waste thermal treatment and preparing mechanisms to soften the impact on households and municipalities. The industry should follow the results of the Commission's review concerning incinerators.