Councils are trying to divert food, paper and plant waste from landfill
A slow government response to EU rules on dumping rubbish could leave councils having to pay hundreds of millions of pounds in fines, according to a report.
The National Audit Office (NAO) says England could miss European targets to halve the amount of biodegradable waste going to landfill by 2013.
The UK government says it will pass on any resultant EU fines to councils.
But the auditors said it had failed to help authorities get waste treatment plants set up quickly enough.
An EU directive passed in 1999 requires England to cut the amount of biodegradable waste - which includes food, paper and vegetation - sent to landfill by 50% on 1995 levels.
If the "challenging" 2013 deadline is missed the EU is expected to levy fines on the UK as a whole and the government has said it will fine local authorities £150 a tonne if they fail to meet targets.
But the NAO report said the Department for the Environment, Food and Rural Affairs (Defra) was initially too slow in developing a strategy to get councils to procure waste treatment facilities under a Private Finance Initiative (PFI).
This involves financial support being made available in the form of "PFI credits", which provide an undertaking that the government will give annual grants to help local authorities pay for the projects.
Just two PFI waste treatment plants have been fully constructed, although councils have finished constructing a number of facilities outside the programme, the report said.
NAO head Tim Burr said: "At the rate at which projects are being delivered, England is at risk of missing the 2013 EU landfill reduction target, leaving the UK open to the possibility of fines.
"The department will need to work hard with local authorities to achieve the planned programmes of new waste treatment facilities, particularly now, when private finance is difficult to raise."
The report acknowledged that Defra had recently taken steps to ensure an accelerated roll-out of new, larger projects and a market for providing waste facilities.
It had also improved its oversight of schemes, which can range from incineration to composting facilities, and its support for local councils.
A Defra spokeswoman said the report recognised that the PFI programme was "progressing well" and that the government was working hard with councils to meet the target.
The Local Government Association, which represents councils in England and Wales, says £1.5bn raised through landfill taxes should have been handed to councils to help them divert waste from landfill.