Cheshire East Council said its cabinet is likely to discontinue its joint waste PFI scheme with Cheshire West & Chester Council when it meets on Monday.
The project was intended to run for 25 years and dispose of around 180,000 tonnes of Cheshire's household waste each year.
Viridor was selected as provisional preferred bidder.
Cllr Peter Mason, member with responsibility for procurement and shared services at Cheshire East, said: "It is with regret that we have to take this decision. However, Cheshire East believes it has no other option but to formally abandon the waste PFI project.
"Both ourselves and Cheshire West and Chester have spent considerable time, money and effort in attempting to minimise the impact that the loss of Government PFI credits would have on the project.
"This Council is now in a position of having to write off the £1.6m spent on the scheme and we are still in the position of having to find a sustainable method of disposing of Cheshire's household waste from April 2014.
"We are keen to find a solution that meets the needs of Cheshire East from this date."
Cheshire West & Chester has already formally announced its withdrawal from the scheme.
Both councils sought a Judicial Review of the Government decision but this was overruled by the High Court.
A number of options have since been considered for the future of the project but abandonment was deemed to be the lowest legal risk available to Cheshire East.