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

2. 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

3. 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)

4. 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

5. Model to assess fund impacts

6. 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
>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 €

7. 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

8. 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)