Insights

Incineration is losing its regulatory licence: what that means for Finland

Kanto Systems · August 2026

For decades, burning waste for energy was the pragmatic answer to Europe's residual waste. Across the EU, and in Finland in particular, law and finance now push the other way: pull material back out of the waste stream, and make whatever still gets burned pay for its carbon. The changes below matter for anyone who owns, supplies or finances waste infrastructure.

A carbon price is coming for incineration

Since 1 January 2024, municipal waste incinerators above 20 MW have had to monitor, report and verify their CO₂ emissions under the EU Emissions Trading System (ETS). Today that is a compliance duty only: no allowances are surrendered yet, and no carbon is paid.

The next step is the one that changes the economics. In its July 2026 review, the European Commission proposed bringing waste incineration into the main EU carbon market on a phased basis from 2031, with 25% of verified emissions surrendered in the first year, rising to 100% by 2034. It covers non-hazardous waste incineration and co-incineration plants above 3 tonnes per hour, which takes in every municipal-scale incinerator. Member states can opt out until 2035, but only if they meet two of three conditions: a national carbon tax on incineration above the average ETS auction price, policies on track for the EU municipal recycling targets, and policies on track for the landfill target. This is a proposal, not yet adopted law, and the exact dates and percentages remain subject to negotiation. Even so, the fossil-carbon fraction of what a plant burns, which is overwhelmingly plastics, is set to carry a direct cost for the first time. Every tonne of plastic sorted out before the furnace becomes a tonne that no longer has to be paid for. The proposal also leaves chemical recycling outside the new activity, so plastic sent to recycling rather than the furnace stays clear of this carbon cost.

The money is moving up the waste hierarchy

The EU Taxonomy, the rulebook for what counts as a sustainable investment, does not recognise dedicated municipal-waste incineration, and treats new capacity as doing significant harm to the circular economy. Sorting, recycling and anaerobic digestion, by contrast, can qualify. Incineration has also been left out of the EU's cohesion and just-transition funding. The capital that finances the transition is being steered away from burning and toward recovery.

At the same time, recycling mandates are tightening the feedstock. Municipal recycling targets rise to 60% by 2030 and 65% by 2035. The Packaging and Packaging Waste Regulation, which applies from August 2026, adds binding recycled-content requirements: from 2030, plastic packaging must contain 10–35% recycled content depending on packaging type. The Single-Use Plastics Directive keeps pulling high-value plastics out of the mixed stream. Each of these removes the most valuable, highest-calorific material from what would otherwise be burned.

For biomass, the Renewable Energy Directive (RED III) has the same effect: its cascading-use principle and the end of subsidies for electricity-only forest-biomass plants make burning for heat alone the lowest-value use and, increasingly, the least supported one.

Why Finland is especially exposed

Finland leaned hard on energy recovery, which makes this shift sharper here than almost anywhere. Since 2016, landfilling combustible and biodegradable waste has been effectively banned, and residual waste was channelled into a large incineration fleet. Finland now landfills under 5% of its municipal waste, which is an achievement, but it is also at risk of missing the EU's 2025 recycling target.

A national incineration tax has been studied repeatedly and set aside; the pricing lever is being left to the EU ETS instead. That also makes the opt-out until 2035 far from certain for Finland. Without a national carbon tax, it would have to show policies on track for both the recycling and the landfill targets, while already at risk of missing its recycling target. The result is a market with capacity built for burning, facing policy designed to divert waste away from it. That gap is widening, and it rewards whoever can move material back up the hierarchy.

What this means for circular projects

Every instrument points the same way: recover material instead of destroying it, and prove what you recovered. That is the ground Kanto Systems develops on: advanced sorting that pulls recyclables out before energy recovery; plastics recycling into verified, specification-grade material; biomass valorised into higher-value products rather than heat; and the traceability layer that turns "recycled" into something a buyer, a lender or a regulator can rely on.

Own an asset, supply a material stream, or finance circular projects and want to understand where this leaves you? Start a conversation, or read about what we develop.

This piece draws on EU and Finnish legislation current to August 2026, including the EU ETS Directive and the European Commission's July 2026 review, the EU Taxonomy, the Waste Framework Directive, the Packaging and Packaging Waste Regulation, the Single-Use Plastics Directive, the Renewable Energy Directive (RED III), and Finland's national waste legislation. Where measures are proposed rather than adopted, we have said so; details remain subject to change.