North Yorkshire County Council will consider whether to close the scheme, which pays out around £111,000 a year to charities and community groups, at a meeting next week.
Under the scheme, organisations collect paper, card, textiles and other materials and sell them on to raise money, with the council also rewarding them for helping reduce the amount of waste sent to landfill sites.
A report prepared for senior councillors argues there is a “strong market” for the waste so it is likely to be collected even without the payment from the county council.
It says the scheme is “not key” to achieving the council’s recycling targets and that the financial pressures on the county “suggests that the scheme can no longer be protected”.
Charities which benefit range from national organisations such as Oxfam and Scope to the Yorkshire Air Ambulance and smaller local groups.
The county council asked 37 organisations about the potential impact of cancelling the scheme and two - Essential Needs in Harrogate and Whitby Area Development Trust, suggested they may need to close as a result.
Council officers have recommended the scheme should be cancelled but not come to an end until October to give the charities time to find alternative sources of income.
A decision will be taken on Tuesday.