Handling excess sludge produced by wastewater treatment is a common problem worldwide. Due to limited space available in landfills, as well as difficulties involved in using excess sludge in agriculture, there is a need for alternative disposal methods. Although anaerobic digestion (AD) is widely used in processing sludge, only partial energy recovery from methane and sludge volume reduction can be achieved, resulting in a substantial amount of sludge remaining, which needs to be disposed of. Direct incineration after sludge drying is one possible option, a practice that is already in place in some cities in China. A comparison between direct incineration and conventional AD (with or without pretreatment by thermal hydrolysis) has to be made with respect to the energy balance and investment & operational (I & O) costs. This comparison reveals direct incineration to have the lowest energy deficit and I & O costs. Therefore, it is expected that direct incineration without AD will become the preferred sustainable approach to handling sludge.