Councils could face fines from the EU totalling millions of pounds unless they deliver improved waste treatment facilities and set up efforts to increase recycling rates, according to a new report by spending watchdog the Audit Commission.

The European Union Landfill Directive requires the UK to reduce the amount of biodegradable municipal waste sent to landfill to 75 per cent, 50 per cent and 35 per cent of its 1995 level by 2010, 2013 and 2020 respectively.

If the UK does not meet these targets, the government faces a sliding scale of fines – if the national target is exceeded by 10 per cent, for example, English councils would share penalties of about £100m.

Michael O'Higgins, chairman of the Audit Commission, warned that recycling schemes did not go far enough.

"You only have to look in your own bin to see that not everything you throw away can be recycled, so we have got to find somewhere other than landfill to put it," he said. "We must keep up the pressure to reduce, reuse and recycle but if we are to avoid being heavily fined for failing to meet the 2013 target then we must also push ahead with the treatment plants that are in the pipeline."

A combination of improved recycling and more waste treatment means that the 2010 target is likely to be met, according to the commission, but more projects are needed to help meet the later targets.

The chief method of waste treatment being planned by councils – waste-to-energy incinerator projects – have run into problems because of local opposition and their failure to work effectively in conjunction with recycling programmes because they need so much feedstock to keep operating, said a spokeswoman for Carbon International.

She argued that councils should consider alternatives to incineration plants that can process waste and generate energy without resulting in carbon emissions.

"There are other technologies out there, such as Advanced Plasma Power, which provide a smaller scale solution to energy from waste, boasts the highest landfill diversion rate of any technology and which encourage and boost local recycling rates," she said. "There are also opportunities for composting systems from companies like New Earth Solutions which could be more effective than incinerators."

David Singh, managing director of Global Renewables – which also offers advanced composting technology – said it is a common misconception that incinerators are a great way to solve the problem of waste.

"Waste is actually a resource stream – up to 80 per cent of what we throw away is reusable and that figure will increase as technology develops to reuse more of it," he said. "The best approach is to have a system of waste processing that can accommodate that. We are building two facilities in Lancashire which will process the household waste of 1.4 million people in the county without recourse to any type of thermal treatment and planning permission was achieved in about four months for each. Added to this, they only take about 18 months to build, as opposed to about three years for the average incinerator."

Michael Grimes from law firm Eversheds said that new and innovative schemes like these might be a good solution to the problem of finding sites for incinerators.

"One way out may be the quickly growing merchant plant sector where companies build waste plants speculatively without a council contract upfront to underpin the investment," he said.

London Mayor Boris Johnson has today outlined plans for a revamp of the capital's recycling strategy designed to bolster recycling capacity, cut carbon emissions and increase recycling rates amongst both households and businesses.

Speaking as he began his new role as chair of the new London Waste and Recycling Board, Johnson announced plans for a new Municipal Waste Management Strategy designed to make recycling easier and place greater emphasis on the extent to which waste management can help cut carbon emissions.

In particular, he signalled his support for waste-to-energy technologies such as anaerobic digestion as opposed to incineration.

"I have consistently said that boosting the capital's recycling rate and sending less waste to landfill is a top priority for my administration and today's meeting was evidence of that commitment," he said, adding that he intended to work closely with London Councils to better promote recycling.

The board also agreed £1.5m in funding to extend the Recycle for London campaign by another year. The publicity campaign, which was launched in 2003, aims to raise public awareness of recycling and provide people with information on how best to recycle.

The precise details of the new strategy are set to be debated more fully at the next meeting of the board, scheduled for 11 December. However, a spokeswoman for the Mayor's Office confirmed that "business waste will be up there as a priority", adding that there would also be a focus on improving recycling infrastructure for the capital.

The new board will have access to a budget of £84m to underpin its strategy, with £60m from central government and £24 from the London Development Agency.