(FORTUNE Magazine) – THE BACKGROUND We're building bigger and bigger mountains of increasingly toxic garbage. The U.S. alone annually produces 1.4 billion tons of waste, the majority of which winds up in landfills. Recycling is a noble goal, but not everything can be recycled, and many places lack the infrastructure for it anyway. Incinerators can reduce the volume of trash, but they emit dioxins and toxic ash, which contaminate the water table. And while newer systems can trap both in filters, those filters then require costly disposal techniques.

THE SOLUTION Montreal-based PyroGenesis has refined a process, called plasma arc gasification, in which solid waste is shredded and fed into a furnace where extreme electrical charges bring the temperature above 3,000 degrees. After an hour or so, waste material breaks down into its molecular building blocks, leaving three marketable byproducts: a combustible synthesis gas, or syngas, that can be converted into steam or electricity; metal ingots that can be resold and melted down again; and a glassy solid that can be processed into material for floor tiles or gravel. Plasma furnaces can safely handle factory and hospital waste, hazardous runoff, and even the oil sludge that comes off ships.

The basic technology is not new; torches were used by NASA scientists in the 1960s to test heat shields on Apollo command modules. PyroGenesis was one of the first companies to try to scale the method for widespread industrial use.

THE PAYOFF With clean-tech investment booming, big clients have started knocking. Carnival, the $11 billion cruise-ship operator, uses a PyroGenesis system to reduce five tons a day of cabin waste and food on one of its vessels to a few pounds of harmless sand. The U.S. Navy has hired PyroGenesis to develop plasma waste systems for new aircraft carriers due out in 2015. PyroGenesis recently sold an industrial system to the University of Athens for about $1 million and is developing 25-, 50-, and 100-ton systems that will sell for as much as $25 million apiece.

THE OPPORTUNITY The long-term market opportunity is immense: An estimated $40 billion is spent annually to transport, incinerate, recycle, and store waste in the U.S. alone.

Although several small waste facilities in Japan use plasma-gas furnaces to incinerate their trash, most industry experts predict that the technology is still several years away from widespread commercial use. Dozens of early-stage startups, meanwhile, have been busy developing related products in niche markets for medical and other hazardous wastes.