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The EU Ship Recycling Regulation: invaluable tool or a threat to ship owners’ survival?

The EU Ship Recycling Regulation

A financial interest usually entails a creative attitude at maximising economic return often to the detriment of the basic principles of environmental protection.

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Stephan Piazza

Manager, Transport- Shipping and Aviation

KPMG in Malta

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EU ship recycling regulation

Unfortunately, this is often true with respect to the treatment of endof-life ships. The shipping industry, and more broadly the maritime sector, does not fall within the area of competence of the European Union. Having said so the EU has over the years regulated this sector indirectly through other areas of competence. One could easily refer to tonnage tax provisions, regulated under the cap of State Aid rules or to the monitoring, reporting and verification of CO2 emissions (“MRV”) reporting mechanisms aimed instead at the protection of our environment. The International Maritime Organization (“IMO”) was always involved in the unification of maritime law and has, over the last decades, contributed actively to the creation of a number of standardised rules across our seas and oceans. Its wide forum enabled a number of conventions and codes to be introduced in remote and less developed jurisdictions. Its remarkable achievements in terms of safety and protection of seafarers are tangible.

Other organisations have also provided their valid contribution: the International Labour Organisation with the drafting and promotion of the Maritime Labour Convention or the Comite’ Maritime International with respect to the protection of maritime creditors rights arising from the operation of a ship. Although the European Union has always sought to regulate the shipping sector, albeit in an indirect manner as explained above, contrary to the past, it is now also seeking to affect vessels flying non-EU flags. Although the goals are noble in intention, they were very often the centre of heated debates.

The EU is an observatory Member at the IMO while each Member State is represented separately through its delegates. The degree of interest into the maritime sphere naturally differs amongst various members. The EU was recently criticised for its lack of coordination with the IMO when introducing its MRV mechanisms notwithstanding the imminent introduction of IMO measures meant to cap sulphur emissions.

Although MVR rules may be seen as a mere muscle-showing exercise by the EU, its intervention within the regulation of ship recycling has instead attracted by many the plause of European Authorities.

Application of the EU Ship Recycling Regulation

The EU Ship Recycling Regulation (“SR Regulation”), in force as from 31st December, 2018, is applicable to EU flagged ships and, with a lesser intensity, to any vessel calling at a port or anchorage of an EU Member State. The EU has therefore surpassed its own physical borders by imposing its own requirements also to vessels flying a non-EU Flag if such calls at port or anchorage of an EU Member State.

As standard practice within the international community the SR Regulation does not apply to

i) warships

ii) ships below 500GT,

iii) non-commercial government vessels and

iv) ships operating throughout their life only in waters subject to the sovereignty or jurisdiction of the same Member state.

As from 31.12.2020 the obligation to carry on board an Inventory of Hazardous Materials (“IHM”) would also apply to non-EU flagged ships calling at a port or anchorage of an EU Port. Now that the SR Regulations have come into force, any European flagged vessel shall be recycled within approved facilities and in accordance with the parameters outlined by the SR Regulation.

Purpose of the SR Regulation

History of the SR Regulation is pretty much tied to the Hong Kong Convention(“HKC”). Similarities between both legal instruments are numerous. The HKC is at the forefront of ship recycling and has set the minimum highest standards in such field. The EU’s lawmaker intention is simply that of rendering effective, through concrete and applicable measures, the values and principles of the HKC. In fact the main obstacle with the HKC lies with its entry into force which, unfortunately, is not set to happen any time soon in view of the minimum number of ratifications required. For this reason the EU has decided to go one step further through the SR Regulation (which is applicable in its entirety throughout the whole EU) by imposing a number of its provisions also to non-European ships.

What’s happening right now in the EU?

Currently, ship recycling is also governed by the EU Waste Regulations (the “Waste Regulation”). The Waste Regulation is itself drafted on the bases of the Convention on Transboundary Movement of Waste (“The Basel Convention”). The main issue concerning the Waste Regulation is that it addresses waste in general not taking in consideration the peculiarities of ships, hence making the Waste Regulation a very weak instrument. A container full of disposable material (i.e. electronic appliances etc.) cannot be treated au pair of a ship containing a variety of hazardous materials, manned by human beings and possibly attached by a number of claims, liens and several other encumbrances.

Challenges of the SR Regulations

The main challenges of the SR Regulation are three:

  1. Costs linked to the treatment of vessels in accordance with the SR Regulation within EU  approved recycling facilities;
  2. Reduced number of EU approved recycling facilities outside EU borders; and
  3. Flagging out of vessels for purposes of ship recycling in an attempt by practitioners to avoid the imposition of its provisions.

Comment

The ultimate aim of the European Union is not the imposition of obligations and additional costs on Ship-owners simply to sustain its authoritative role but the protection of the environment through the creation of a safer working environment within such industry and a safer and more environmental friendly ship recycling industry. 

The EU is well aware that it will not be able to reach such objectives simply by imposing such requirements onto its own registered fleet. Notwithstanding this, the number of yards all over the world adopting practices in compliance with the HKC and the SR Regulation is on the increase.

It is clear that EU’s real ambition is a 180 degree twist of the main players’ approach and attitude towards ship recycling, instilling strong values and principles in this regard through the imposition of clear procedures. The intention of the EU is clearly that of eradicating bad practices in this field in order to avoid such images as those of a giant container carrier beached on a south Asian bay with fluids dumped into the sea and naked handed workers cutting same into pieces.

What if such goals are not reached?

The EU should be brave enough and trigger Article 29 of the SR Regulation allowing the introduction of financial instruments meant to stimulate sound and safe ship recycling and deter the change to a non-EU flag for the last ship voyage to a recycling yard. A very detailed report commissioned by the EU listing such measures was published two years ago. Compliance with the SR Regulation already comes at cost for the shipowner (i.e. hazardous material inventory list on board), the sector’s reaction to the introduction of new financial measures, in addition to challenges currently posed by the ever changing regulatory scenario (i.e. sulphur emissions etc.) is predictable. Balancing the needs of all parties involved in the end-of-life stage of a vessel, also through a structured consultation process, is fundamental in order to achieve the goals of the European regulator.

 

© 2019 KPMG, a Malta civil partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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