EU Ship Recycling Regulation will apply in full after 31 December 2018

“Each year, hundreds of large ships are dismantled in much criticized conditions on the beaches of South Asia. Ships are run aground on tidal mudflats, before low-paid workers – sometimes children – dismantle them, with little personal protective equipment or heavy machinery. The practice has caused dozens of fatalities among the workers, significant pollution to the surrounding environment and populations and it has garnered strong media and NGO attention. Global Trade Union group IndustriAll has called ship breaking "the world's most dangerous job". (1)

- The European Commission

Introduction to ship recycling

The European Regulation on Ship Recycling (“ESRR”) was adopted, and entered into force, on 20 November 2013. The Regulation however provides that EU flagged ships would have to have an Inventory of Hazardous Materials (“IHM”); be surveyed; be certificated; and ships destined for recycling, be recycled in accordance with the new Regulation, from the earlier of; (a) six months after the European List of approved yards reaches a combined capacity of 2.5 million LDT (2); or (b) the end of December 2018.

The first version of the European List of ship recycling facilities (“the European List”) was required to be published not later than 31 December, 2016. This List was published on 19 December, 2016 and updated in May 2018. In June of this year, the European List only listed yards situated in Europe with a combined capacity of around 300,000 LDT, a capacity far short of the 2.5 million LDT stipulated in (a) above.

31 December 2018 is however just around the corner and will bring with it the full application of the ESRR, ushering in the requirement for EU flagged ships of 500 gross tonnage (3) and above, to have an IHM, be surveyed, certificated, and recycled in accordance with the ESRR.

The UK P&I Club explains the background to the ESRR, highlights its main provisions and summarises the potential implications of the Regulation on Members trading to, from and within the EU after 31 December 2018.

Background of ship recycling

The Hong Kong Convention 2009

The Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, adopted on 15 May 2009, was intended to address all the issues around ship recycling, including the fact that ships sold for scrapping may contain environmentally hazardous material.

The Convention prohibits or restricts the installation or use of certain hazardous materials on ships. These hazardous materials include asbestos, ozone-depleting substances, polychlorinated biphenyls (PCB), perfluorooctane sulfonic acid (PFOS) and anti-fouling compounds and systems.  It is a key requirement in the Convention that owners keep an inventory of hazardous materials on board the ship throughout its life–cycle.

The Convention provides for its Parties to take more stringent measures consistent with international law, with respect to the safe and environmentally sound recycling of ships, in order to prevent, reduce or minimise any adverse effects on human health and the environment. The Convention has however yet to enter into force as several ship owning and ship recycling countries have yet to ratify it. 

The Basel Convention 1989

The Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal (“the Basel Convention”), was adopted in 1989, and entered into force in 1992. The Convention was designed to control the international movement of hazardous waste, and specifically to prevent transfer of hazardous waste from developed countries to less developed countries.

To further strengthen the protection of developing countries, the Convention adopted in 1995 the Basel “Ban Amendment”, banning the export of all hazardous wastes for any reason including recycling, from OECD (4) to non-OECD countries.

The Ban Amendment has not yet entered into force internationally but the EU has unilaterally enforced the Ban Amendment in the EU since 2006 through its European Waste Shipment Regulation (“EWSR”). Under the Basel Convention, an end-of-life ship proceeding for demolition falls under the definition of “waste”.

The European Waste Shipment Regulation (EWSR) 2006

The EWSR was adopted in 2006. It brought the Basel Convention into EU law by inter alia prohibiting the export of waste for disposal to non-EU countries; the exports of hazardous waste for recovery or disposal to non-OECD countries; the imports of waste from states that are not part of the EU or OECD as well as imposing restrictions and control procedures on exports of waste for recovery to non-EU countries.

EU flagged ships going for dismantling are classified as hazardous waste under the EWSR since they contain hazardous substances. As such they can only be dismantled within OECD countries.

It has been questioned whether ship recycling should be dealt with under the EWSR or whether it would be more appropriate for it to be dealt with under the Hong Kong Convention (once the Convention comes into force) and under the ESRR. The European Commission has in response stated that to “ensure legal clarity and avoid administrative burden, ships covered by the ESRR will be excluded from the scope of the EWSR”.

The EU Ship Recycling Regulation (ESRR) 2013)

The ESRR was adopted to help speed up the ratification process of the Hong Kong Convention both within the EU and in third countries. It implements the requirements under the Hong Kong Convention at EU level, with some additional requirements.  The ESRR aims to ensure an efficient and effective solution to unsafe and unsound ship recycling practices in OECD countries and in relevant third countries and to reduce the negative impacts linked to the recycling of ships flying the flag of Member States of the EU.

The ESRR prohibits or restricts the installation or use of hazardous materials referred to in its Annex 1 on ships and each new European ship (or a ship flying the flag of a third country calling at an EU port or anchorage) will be required to have on board an IHM which shall identify at least the hazardous materials referred to in Annex II and contained in the structure of the ship, their location and their approximate quantities. 

The ESRR also established the European List of ship recycling facilities. To be included in this List, any ship recycling facility or yard irrespective of its location has to comply with strict requirements. The requirements should achieve a high level of protection of human health and the environment that is broadly equivalent to that in the EU. While facilities located in the EU are added to the List when nominated by the national authorities of the Member States, facilities located in third countries have to submit applications to the Commission for assessment. These facilities must also meet a number of requirements such as to accept for recycling ships flying the flag of an EU Member State, only in accordance with the provisions of this Regulation.

When preparing to send a ship for recycling, ship owners shall:

1. provide the operator of the ship recycling facility with all ship-relevant information, necessary for the development of a ship recycling plan;
2. notify the relevant administration in writing, within a time frame to be determined by that administration, of the intention to recycle the ship in a specified ship recycling facility or facilities. The notification shall include at least:
   1. The IHM; and
   2. all ship-relevant information provided under (1) above.

Ship owners shall ensure that ships destined to be recycled:

1. are only recycled at ship recycling facilities that are included in the European List;
2. conduct operations in the period prior to entering the ship recycling facility in such a way as to minimise the amount of cargo residues, remaining fuel oil, and ship generated waste remaining on board;
3. hold a ready for recycling certificate issued by the administration or a recognised organisation authorised by it prior to any recycling of the ship, and after the receipt of the approved ship recycling plan.

The Seatrade Case

Historically, ship owners had systematically evaded the provisions of the EWSR by recycling their ships at facilities located in non-OECD countries due to a lack of ship recycling capacity in OECD countries, but also because the price received for their end-of- life ships is higher in those countries. A ship owner would do this by not declaring at the time of departure from an EU port the ship’s true destination and/ or the fact that the ship is to be scrapped at destination; trade the ship outside the EU before scrapping or reflag the ship before the sale.  Occasionally, ships in breach of the provisions of the EWSR sailing within EU waters, are detained but it was widely agreed that the EWSR was “unsuccessful, impractical and unenforceable” for regulating ships destined for recycling at yards in non-OECD countries.

In March 2018 however, the Rotterdam District Court found the Dutch shipping company, Seatrade, and two of its directors criminally liable for selling ships to scrap yards in non-OECD countries in breach of the EWSR. The company and the directors were fined up to Eur 750,000.  The prosecutors had also asked for prison sentences for the two directors but the directors were instead banned from taking up executive roles at any shipping company for a period of twelve months.

The decision in Seatrade was a surprise to the industry as it was the first time a ship owner had been held criminally liable under the EWSR for the illegal export of ships for scrapping. While Seatrade are appealing this decision to the Court of Appeal in the Hague, the decision has sent a tremor through the industry as it clearly signaled a change in the regulators’ attitude in their application of the EWSR. Following on from this case, some 5 EU countries are reportedly investigating similar cases to see if the owners concerned had taken steps to evade compliance with the EWSR.

In the Seatrade case, the prosecution relied inter alia on email evidence which showed that negotiations on the fleet’s scrap value and on the removal of valuable equipment and spares took place prior to the voyages from the departing EU ports. The prosecution also heard evidence from the crew that they had been ordered to ensure that the ships had as little fuel and oils on board as possible on arriving at their destinations.

It is anticipated that the more rigorous approach as seen in this case, where the court will thoroughly investigate the decision making process of the ship owner, will be adopted in regulating compliance with the ESRR.

What are the changes coming in after 31 December 2018?

Bellow is a summary of the inter-relationship between the EWSR and the ESRR and of the requirements which may impact on Members post 31 December 2018 as a result of the full implementation of the ESRR.

• The EWSR defines its scope territorially. Whether or not a shipment of waste is caught by the EWSR depends on the origin, destination and route of the shipment. It currently applies to all ships whatever her flag trading to and departing from Europe for whatever purpose.
• The ESRR defines its scope by the ship’s flag. It applies to all EU flagged ships destined for recycling, wherever those ships may be setting off from.  Under the ESRR, ships flying the flag of an EU Member State may only be recycled in recycling facilities which are included in the European List.
• Currently both the EWSR and the ESRR apply to EU flagged ships departing from Europe destined for recycling.
• After 31 December 2018, the EWSR will no longer apply to EU flagged ships departing European waters for recycling but will continue to apply to any non-EU flagged ships, departing from EU ports for recycling.
• The ESRR provides for the prohibition, or restriction on the use, or installation of certain hazardous materials including asbestos, ozone-depleting substances, polychlorinated biphenyls, perfluorooctane sulfonic acid, and anti-fouling compounds and systems on ships.
• Under the ESRR, the ship owner before his ship can be properly recycled, must provide to the operator of the facility, information for the development of a ship recycling plan, the completion of a number of surveys, the provision of all relevant notifications to the relevant administrations, and the issuance and endorsement of inventory certificates.
• EU flagged ships going for recycling shall as far as practicable, from the publication of the European List on 19 December 2016, have on-board an IHM.
• After 31 December 2018 however, EU flagged ships going for recycling must have on-board an IHM.
• Existing EU flagged ships must as far as practicable have on-board an IHM, but this requirement becomes compulsory as from 31 December 2020.
• New EU flagged ships built after 31 December 2018 must have on-board an IHM.
• After 31 December 2020, all non-EU flagged ships calling at EU ports and anchorages, must also have onboard IHMs.

The above list is not exhaustive and Members are referred to the full text of the ESRR; https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32013R1257 and to the European Commission’s Environmental webpage;  http://ec.europa.eu/environment/waste/ships/index.htm, for additional information.

Conclusion

After 31 December 2018, two different regimes will apply to ships departing from EU ports for recycling.

For owners of EU flagged ships, there is a real concern that the facilities currently listed on the European List may not have sufficient capacity or expertise to handle all their ships destined for recycling. 

Several non-OECD yards have upgraded their yards to meet the requirements of the Hong Kong Convention and have had their yards approved by that Convention.  These yards will need to get EU recognition so as to be added to the European List. The European Community Shipowners’ Associations (ECSA) have urged the EU to include these facilities in the European List as quickly as possible but with days to go before the ESRR enters into full force, it is doubtful that the Commission’s vetting and approval process for these yards will be completed timely to ensure immediate availability of sufficient yard capacity. 

Another very important date to note is 31 December 2020. After this date, it becomes compulsory for all EU flagged ships, as well as for all non-EU flagged ships calling at EU ports and anchorages, to have onboard an IHM. The non-EU flagged ships must in addition carry a statement of compliance issued by the authorities of the third country whose flag the ship is flying.

Port State Control in the individual member states will inspect ships for compliance with the ESRR. The sanctions regime is to be determined by the individual member states. While the guidelines provided in the Regulation are that penalties imposed - which may be of a civil or administrative nature - should be effective, proportionate and dissuasive, considerable variation in the strictness of enforcement and on the level of penalties imposed for non-compliance can nevertheless be expected. 

Footnotes:

(1) The European Commission’s Environmental web page; http://ec.europa.eu/environment/waste/ships/index.htm, 
(2) LDT - light displacement tonnes
(3) See Article 2 of the Regulation for exceptions.
(4) OECD - The Organisation for Economic Co-operation and Development
 

The UK P&I Club’s legal articles discuss a myriad of topical subjects of interest in the maritime industry from a legal perspective. These articles are written by internal and external experts. 

If Members have any questions on any of the issues covered in this  Article, please contact the Legal Team via Dr Chao Wu (chao.wu@thomasmiller.com), Jacqueline Tan (jacqueline.tan@thomasmiller.com) or Ioana Gonciari (ioana.gonciari@thomasmiller.com) or your usual contact at the Club, and we will be pleased to assist you with your questions. The Legal Team also welcomes suggestions from Members on P&I related topics and issues for our future articles.