Waste treatment facilities are often shared among different municipalities as a means of managing wastes more efficiently. Usually, management costs are assigned to each municipality depending on the size of the population or total amount of waste produced, regardless of important environmental aspects such as per capita waste generation or achievements in composting or recycling. This paper presents a feebate (fee+rebate) system aimed to foster urban waste reduction and recovery. The proposal suggests that municipalities achieving better results in their waste management performance (from an ecological viewpoint) be recompensated with a rebate obtained from a fee charged to those municipalities that are less environmentally sound. This is a dynamic and flexible instrument that would positively encourage municipalities to reduce waste whilst increasing the recycling. © 2003 Elsevier Ltd. All rights reserved.