A more circular economy can have broad implications on energy recovery from municipal solid waste (MSW) incineration. Here we present an optimization framework to assess the optimal capacity, economics, and carbon footprint of MSW incineration over time. Using Madrid (Spain) as a case study, we find that ambitious recycling targets do not entail a risk of shortage in feedstock availability for incineration. An intensive use of incineration is imperative to reach the 10% landfill goal by 2035; between 23% and 54% of MSW over 2020-2040, depending on the scenario. Furthermore, the net cost of incineration could decrease by up to 67% driven by a shift in feedstock composition −characterized by a higher share of plastics− and the implementation of new, more efficient facilities. However, future changes in waste composition and the decarbonization of electricity mixes would increase the carbon footprint of incineration by 19-100%, thereby reducing the potential climate benefits.