Profundo – Financial mechanisms to ensure responsible ship recycling (January 2013)

Abstract

“This study [...] analyses possible financial mechanisms that could be included in the EU Regulation on Ship Recycling to improve its effectiveness in ensuring that ships are recycled in a responsible manner. [...]

Three options for financial mechanisms are further researched based on a discussion of existing literature, an analysis of the experiences with comparable recycling fund structures in the automobile and electronics sectors, a legal analysis and interviews with a large number of stakeholders in the shipping industry:

 Option 1 is a Ship Recycling Fund, which is filled by a fee on all ships calling at EU ports. The owners of “EU ships”, which are recycled at certified recycling facilities, could recover from this fund the additional costs of responsible recycling. Such an option seems feasible as shipowners already pay port fees for port services. It will require an institutional set-up to determine which ships are eligible for support.

 Option 2 is a Ship Recycling Insurance, arranged between the shipowner and an accredited insurance company. Showing a valid insurance certificate could be required of all ships entering European ports. The premiums paid for the Ship Recycling Insurance during the lifetime of the ship, would cover the additional costs of responsible recycling of the ship at the end of its life. The insurance company will only pay-out on proof of responsible recycling at an authorised facility.

 Option 3 is a Ship Recycling Account in combination with a Transitional Fund. Over the course of 20 years, each shipowner makes annual deposits to the Ship Recycling Account (SRA) of the ship, which is managed by a bank or asset manager. The annual SRA Certificate will allow the ship to enter EU ports. Upon proof of responsible recycling, the SRA is paid in cash to the shipowner.

A temporary surcharge on the deposits of all ships made to their SRA, should be transferred to a Transitional Fund. With these proceeds, the Fund can subsidize the responsible recycling of older ships. Only ships which have made uninterrupted annual deposits (for a minimum number of years) in a Ship Recycling Account from the year the EU Regulation is implemented, and which have entered EU-ports a minimum number of times during this period, are eligible for support.”