Financial instrument to facilitate safe and sound ship recycling EESC Hearing: Shipbreaking & the recycling society Roelof Jan Molemaker (ECORYS) Brussels, 3 May 2015

1. Aim of financial instrument SRR is good step forward … … but can be easily circumvented by reflagging. Financial instrument is intended to avoid this. Scrapping of EU Beneficial Owner and EU flagged ships (number of ships sold, 2014) Dismantled in EU flag South Asia 41 (39%) China & Turkey 37 (35%) EU 28 (26%) Total 106 (100%) Source NGO Shipbreaking Platform

Options (re-)considered Main shortcomings Do nothing Baseline, re-flagging behaviour expected Non-financial Low effectiveness (easy to circumvent, lack of enforcement) Ship Recycling Guarantee Difficult to transfer to new owner Disproportionate for low frequently calling ships Ship Recycling Account Ship Recycling Insurance Lack of “insured object” (lack of unforeseen event other than loss of ship) Not feasible as separate instrument Port levy / fund Administrative burden for ports Potentially non-WTO compliant (non earmarked funds) Possibly considered as tax (outside EU mandate)

Preferred (new) option: Ship Recycling License Key elements: Required for all ships, irrespective of flag, to enter EU ports (pre-condition to enter port) – again to avoid reflagging To be obtained from a centralised EU agency; port state control to check presence and validity SRL as part of normal procedure Month or year license License fee is charged to ship owner depending on capital required to overcome revenue gap of safe and sound recycling plus small administrative surcharge Fee income is transferred to Ship Recycling Fund Payable to ultimate ship owner at proof of safe and sound recycling Forfeited funds can be used for general purposes

Model to assess fund impacts

Cost of license & required capital Capital to accumulate & cost of license 15 years payment; 20 years accumulation Costs of safe & sound recycling (20 €/LDT) Administrative costs approx. 0.8% of license fee Ratio license costs/ship operating costs 0.5-2% Ship size category (dwt * 1000) Amounts in € * 1000 0,5-5 5-10 10-20 20-50 50-100 100-200 >200 Total amount to accumulate per ship (1000 €) 15 k€ 30 k€ 60 k€ 150 k€ 298 k€ 596 k€ 746 k€ Annual (license fee) instalment 810 € 1650 € 3300 € 8200 € 16500 € 33000 € 41000 € Monthly (license fee) instalment 108 € 220 € 440 € 1090 € 2200 € 4400 € 5470 €

Key impacts 1/2 Of current ships visiting EU ports 42% will opt for safe & sound recycling (increasing over time) Main uncertainty: regional steel price developments Forfeited funds can possibly be used for transition period

Key impacts 2/2 Trade impacts: minimal Port competition: Port charges approx. +2% No change intra-EU Mainline routes: no change expected (hard to avoid EU port) Possible impact on transshipment limited (Malta example -1% containers) Employment impacts: potential additional demand for EU shipyards at start Social & environmental impacts: positive related to safe & sound scrapping Fiscal revenue EU flag states (avoidance re-flagging): positive but limited 2nd hand vessel market: some specific changes (case-by-case dependent)