Councils are fined if they fail to meet waste targets
A site for two councils to jointly recycle food waste and left-over recycling materials has been earmarked.
Rhondda Cynon Taf and Merthyr Tydfil councils say the planned facility would "greatly reduce" the amount of waste that is dumped at landfill sites.
They say the project could be part of the Bryn Pica landfill and recycling centre near Aberdare.
A shortlist of companies selected to bid for the scheme is due to be announced shortly.
Earlier this week it was announced that all 22 councils in Wales had met targets on the amount of biodegradable waste they can send to landfill sites.
But councils were warned that targets would be getting tougher and they would need to "step up" action.
Failure to meet targets result in financial penalties.
The Tomorrow's Valley/Cwm Yfory joint project between Merthyr and RCT councils would allow both authorities to recycle more food waste and materials left over after recycling.
The recycling unit will serve two counties
If sent to landfill sites, this waste can form hazardous landfill gas and leachate, the liquid created by rain water mixing with waste.
More than half of councils have already started or aim to begin offering food waste recycling in the next year.
Merthyr and RCT are among those that have already started to introduce food waste collections.
Aled Roberts, Welsh Local Government Association spokesperson and chair of Waste Awareness Wales, welcomed the proposal.
"For too long Wales has relied on landfill and there is recognition that to deal with our waste in the most sustainable and environmentally-friendly way, investment is needed in a range of facilities," he said.
The Welsh Assembly Government has already urged councils to introduce more food recycling and offered a package of grants.