A large amount of paper is recycled in China, that generates a significant amount of sludge and residue during the paper production process. Energy recovery by means of combustion in Waste-to-Energy (WTE) plants can be a possible candidate for sludge elimination. Currently, two incineration methods, distinguished as either direct incineration of partially dewatered sludge (generally 80% water content) or dried sludge incineration (dried to about 40% water content), are available. Research on comparison of fixed cost, operating cost and pollutant emissions between the two systems is presented. Fixed cost and steam consumption increase for the dried sludge incineration system though this method possesses many advantages, these include the decrease in consumption of auxiliary coal, service power and flue gas purificants. Moreover, main pollutant emission, such as SO2 and NOx, is significantly reduced. Chinese WTE managing regulations recommend no less than a 4:1 weight ratio of waste to auxiliary fuel fed into the incinerator. For a partially dewatered sludge direct incineration system, this weight ratio is about 5:1. However it reduces to 3.6:1 in a dried sludge incineration system. This is offset by a decrease in consumption of auxiliary coal and the overall weight ratio based on the entire plant increases to 7.5:1. The result suggests not only the technical and economic feasibility of a dried sludge incineration method, but also the feasibility of adopting the weight ratio of waste to auxiliary fuel based on entire WTE plant in the future regulation in China.