COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the document

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on ship recycling

This report commits only the Commission's services involved in its preparation and does not prejudge the final form of any decision to be taken by the Commission.

TABLE OF CONTENTS

1........... Procedural issues and consultation of interested parties.................................................... 6

1.1........ Organisation and timing................................................................................................... 6

1.2........ Consultation for the Impact Assessment.......................................................................... 6

2........... Problem definition and identification of the drivers............................................................ 9

2.1........ Large commercial European ships end up in substandard dismantling facilities outside the OECD leading to negative health and environmental impacts....................................................................... 9

2.2........ What are the underlying drivers of the problems?........................................................... 13

2.3........ Who is affected, in what ways, and to what extent?....................................................... 22

2.4........ How would the problem evolve, all things being equal?.................................................. 22

2.5........ International and national policy approaches.................................................................. 23

2.6........ Industry approaches..................................................................................................... 26

2.7........ The right of the EU to act.............................................................................................. 27

3........... Policy objectives........................................................................................................... 28

3.1........ General objective:......................................................................................................... 28

3.2........ Specific objectives:....................................................................................................... 29

3.3........ Consistency of the objectives with fundamental rights..................................................... 29

4........... Description of policy options......................................................................................... 29

4.1........ Option A: the baseline option........................................................................................ 30

4.2........ Option B: implementing key elements of the Hong Kong Convention in the current European legislation. 32

4.3........ Option C: addressing the dismantling of large commercial vessels through domestic legislation of the EU Member States only.................................................................................................................... 33

4.4........ Option D: covering ship dismantling by specific rules implementing the Hong Kong Convention 33

4.5........ Option E: covering ship dismantling by specific rules implementing and going beyond the Hong Kong Convention:.................................................................................................................................... 34

5........... Analysis of impacts....................................................................................................... 35

5.1........ Assumptions and methodology used for the quantitative assessment............................... 36

5.2........ The impact of options on where ships are dismantled..................................................... 38

5.3........ Baseline scenario.......................................................................................................... 40

5.4........ Option B: implementing key elements of the Hong Kong Convention in the current European legislation. 45

5.5........ Option C: addressing the dismantling of large commercial vessels through domestic legislation of the EU Member States only.................................................................................................................... 46

5.6........ Option D: covering ship dismantling by specific rules implementing the Hong Kong Convention 47

5.7........ Option E1: addressing also government vessels, including navy vessels, in the new legislation instrument transposing the Hong Kong Convention........................................................................................... 48

5.8........ Option E2: requesting EU flagged ships to be treated in facilities which are providing a level of protection of health and of the environment equivalent to EU facilities........................................................... 50

5.9........ Option E3: allowing the export of EU-flagged ships only to a list of third party certified and audited facilities. 52

6........... Comparing the options.................................................................................................. 55

6.1........ Effectiveness................................................................................................................. 55

6.2........ Efficiency...................................................................................................................... 56

6.3........ Coherence.................................................................................................................... 56

6.4........ Recommended option................................................................................................... 56

7........... Monitoring and evaluation............................................................................................. 57

COMMISSION STAFF WORKING PAPER

IMPACT ASSESSMENT Accompanying document to a legislative proposal on ship dismantling This report commits only the Commission’s services involved in its preparation and does not prejudge the final form of any decision to be taken by the Commission.

Introduction

According to the current legislation (the Waste Shipment Regulation[1]), the EU flagged ships which are going for dismantling are hazardous waste and can only be dismantled within the OECD. This legislation is almost systematically circumvented by EU flagged ships[2]. Currently, most EU controlled ships are indeed dismantled in Asia (India, Pakistan and Bangladesh), usually through "beaching" method and with significant environmental and health impacts.

This widespread non-compliance is firstly linked with the lack of recycling capacity available within the OECD in particular for the largest ships. Developing capacity within the OECD has not been feasible in particular because of the lack of economic viability. The non-compliance is also partially driven by the interest of shipowners to avoid the costs of environmentally and socially acceptable dismantling in OECD facilities, and partially by the ease with which the legislation can be avoided: EU shipowners can with limited effort maximise the profit from selling their old vessels by choosing a non-EU jurisdiction for their vessels at the end of the life of the ships.

The Commission adopted a Green Paper on better ship dismantling in 2007 and a Communication proposing an EU strategy on ship dismantling[3] in 2008. This strategy proposed measures to improve ship dismantling conditions as soon as possible, including in the interim period before the entry into force of the Hong Kong Convention[4]: i.e. preparing the establishment of measures on key elements of the Convention, encouraging voluntary industry action, providing technical assistance and support to developing countries and better enforcing the current legislation. The Commission also announced that it would look at the feasibility of developing a certification and audit scheme for ship recycling facilities worldwide, addressing also navy ships and other government vessels not covered by the Hong Kong Convention and establishing a mandatory international funding system for clean ship dismantling.

The Hong Kong Convention, when it comes into force, will require Parties to the Convention (including EU Member States) to dismantle their large commercial ships only in countries that are Party to the Convention. This will include Asian countries, whose ship dismantling facilities will need to meet internationally accepted standards (higher than the current standards). These facilities will have to treat the ships coming from non-Parties to the Convention in a similar manner as ships flying the flags of the Parties to the Convention ("no more favourable treatment" clause).

The Convention was adopted in 2009 but needs to be ratified by a sufficient number of large flag and recycling states in order to enter into force and start producing effects. This is not expected to happen before 2020 at the earliest.

Broadly speaking, this Impact Assessment considers the options for the development of a regime for ship recycling which can be effectively enforced. The analysis considers the economic, social and environmental impacts of different options by examining the changes in ship dismantling behaviour. It has been prepared by the Unit for Waste Management of the Directorate General for Environment (DG ENV) and is the basis for a legislative proposal on ship recycling.

1. Procedural issues and consultation of interested parties

1.1. Organisation and timing

The impact assessment process was steered by the Inter-Service Group on ship dismantling which was used as an Impact Assessment Steering Group. This group was chaired by DG ENV and with members from SG and DGs COMP, DEVCO, ENTR, EMPL, MARE, REGIO, RTD, SANCO, TRADE and MOVE. Furthermore, experts of the European Maritime Safety Agency (EMSA) provided valuable input and advice for the impact assessment studies.

1.2. Consultation for the Impact Assessment

In developing this Impact Assessment, the Commission services consulted stakeholders and drew upon external expertise through a public consultation and three expert workshops.

1.2.1. Public consultation and expert workshops.

The preparation of this report has been preceded by a public consultation on a new initiative regarding dismantling of ship open from April to June 2009 in order to gather as many comments and suggestions as possible from the stakeholders concerned.

Given the complicated nature of the topic, participation was relatively large: 27 contributions were received from various stakeholders active at local, national, European and international level: EU Member States, local authorities, environmental NGOs[5], individual companies and industry associations (shipowners, recycling facilities, P&I clubs, classification society[6]), trade unions, academia. Both public (Member States) and private shipowners (through their professional associations) have actively contributed to the public consultation as well as to the stakeholder workshops. Contributions have been received from national (France, Belgium), European (European Community Shipowners’ Association[7]) and International associations (the Internation Chamber of Shipping[8], Intertanko).

The detailed inputs received have been summarized in a report published on DG Environment's website[9] and are addressed in a detailed manner in this report (in the sections presenting problem definition, identifying and assessing of the possible options).

Some stakeholders have asked for a continued involvement of stakeholders on a on-going basis and not only through a general public consultation. For this reason, and in order to get more detailed information to support the study undertaken to supporting this impact assessment, the Commission services also organised three expert workshops on 9 June and 23 October 2009 in Brussels and on 26 and 27 June 2011 in the European Maritime Safety Agency in Lisbon. The presentations provided during these workshops as well as a summary of the information gathered from the experts have been made available on DG Environment's website[10] in order for both experts and all interested parties to further contribute. Contributions have been received in particular from recycling facilities located in Turkey and India directly or though the coordinator of the DIVEST Project[11] and taken into account in the studies undertaken on behalf of the Commission[12].

Most stakeholders clearly supported a prompt ratification of the Hong Kong Convention by the EU Member States in order to fulfil, to a large extent, its entry into force of provisions related to flag States[13] whilst encouraging ratification by other States. Many stakeholders are in favour of early implementation of the Convention by the EU since they consider that waiting for entry into force of the Convention is unacceptable when ship breaking workers continue to be killed or injured at work and considerable environmental damage occurs. Some consider that the EU should not impose additional requirements that go beyond the Convention.

The main positive consequence of early implementation would be the improvement of ship recycling operations with respect to worker health and safety and environmental protection. Many stakeholders take the view that an harmonised transposition at EU level will ensure a more level playing field and reduce administrative burdens for ship owners and recycling facilities in the EU. Early transposition could also encourage the development of more ship recycling facilities. It was noted that such EU legislation should also comply with ILO conventions and recommendations. It is suggested that the Commission should promote ratification among the Member States and use its political influence to encourage recycling States to take similar action so that sufficient global ship recycling capacity is maintained.

The most significant negative consequence of early implementation identified by the stakeholders is the risk of reflagging of EU ships during their operational life to an "open register" , or the reflagging of ships nearing the end of their life to non-EU countries in order to avoid complying with regional measures. Reflagging would result in a reduction of the size of the EU fleet and the EU’s influence with regard to maritime issues. Another risk is that implementation would be too rapid and there would not be enough recycling capacity available for EU flagged ships in view of the phasing out of single hull tankers. Finally, some stakeholders point out that since early implementation at EU level could make ratification by Member States apparently redundant and therefore discourage them to ratify the Convention thus postponing its entry into force.

The public consultation and the expert workshops met the minimum standards for consultation. The contributions received to the public consultation are available, together with the summary of the responses, on the following website: http://ec.europa.eu/environment/waste/ships/index.htm

1.2.2. Opinions expressed by the European institutions on the Communication.

The European Parliament, the European Economic and Social Committee and the Council debated the Communication and adopted respectively a resolution on 26 March 2009[14], an opinion on the 13 May 2009[15] and conclusions on 21 October 2010[16]on an EU Strategy for better ship dismantling.

1.2.3. External contractor

External contractors carried out preparatory studies for this IA, that are published at: http://ec.europa.eu/environment/waste/ships/index.htm. Moreover, in order to update the available information about the world fleet and dismantled ships in 2008 and 2009, additional data have been provided to the Commission through a contract with one of the leading companies (IHS Fairplay) managing maritime databases.

1.2.4. Results of the consultation of the Impact Assessment Board (IAB)

Following the submission of a draft report to the Impact Assessment Board (IAB) on 27 July 2011 and a written procedure, the IAB sent its opinion on 8 September 2011. The recommendations of the IAB were duly taken into account and the main modifications were the following:

· the problem definition was revised to:

· include more information about the dismantling capacity in the EU and the current and expected competitiveness of the ship recycling countries,

· clarify to what extent the current problems are going to be solved by the Hong Kong Convention and describe what would be the outstanding problems which would justify the need to go beyond the requirements of this Convention,

· More detailed information was provided about the stakeholders' positions,

· A table presenting the follow up of the actions announced in the 2008 EU Strategy on ship dismantling was introduced.

· The specific and operational objectives were reformulated so as not to pre-empt discussions on policy options,

· The content of the policy options was clarified and more explanations were introduced regarding their impacts, proportionality and effectiveness focusing in particular on compliance aspects.

· The indicators for monitoring the intended effects of the legislation were clarified and expended in order to address employment, the state of ratification of the Hong Kong Convention and the effective enforcement of this Regulation.

2. Problem definition and identification of the drivers

Small ships and governmental vessels are usually dismantled within the European Union or in Turkey. For technical (inability to travel in high sea and impossibility to tow them) and economic reasons (travel costs) small ships are generally dismantled locally[17]. Some stakeholders expect the small local markets will continue to exist handling coastal, fishing and inland waterway vessels. These stakeholders consider that while these can provide models of responsible ship recycling and best practice, it is not realistic or economic to expect such facilities to handle significant volumes of larger ships, given the high labour costs and low recycled value. It is therefore more cost-effective to devote resources to improving standards and upgrading facilities in more appropriate countries, rather than creating artificial markets and subsidised facilities in high cost countries.

Large governmental vessels (including navy ships) are dismantled within the OECD because the existing recycling capacity is adequate but also to protect some sensitive technologies. The recycling demand has been estimated at 40 000 LDT per year for these ships while the existing capacity has been estimated at 250 000 LDT[18].

2.1. Large commercial European ships end up in substandard dismantling facilities outside the OECD leading to negative health and environmental impacts.

The dismantling of ships is at present sustainable from a narrow economic point of view, but the costs for human health and the environment are high. It is fair to say that with regard to end-of-life ships the polluter pays principle is usually not applied. Ship owners generally make a profit from selling their obsolete ships to ship dismantling facilities or intermediate buyers, and they can maximise this profit when selling to facilities which do not follow the strictest health and safety and environmental standards.

Ships have a normal life span of about 30 years after which they are sent for dismantling. The average dismantling age varies over time and depending on several factors[19]. Due to the shipping crisis and to regulatory developments (phasing out of single hull tankers in 2015), the number of ships sent for dismantling since 2008 has doubled compared to the previous yearly averages[20].

Ship dismantling is, in principle, a very positive activity leading to reuse and recycling of large amounts of valuable resources (steel, other scrap metal and equipment in particular). But ships also contain large amount of hazardous materials such as asbestos, PCB, heavy metals, oil, mercury, ozone depleting substances (ODS) which, if not handled, removed and disposed of in a safe and environmentally sound manner (ESM) lead to significant detrimental effects on both human health and the environment.

Member States and companies in the EU are concerned since they play a major role in international shipping (17 % of the international merchant fleet tonnage is flying EU flags and about 37 % of the tonnage belongs to EU owners). The dismantling of EU flagged ships will produce an estimated yearly average of 80 600 tonnes of hazardous waste in the period 2012-203012.

Most ship dismantling takes place nowadays in South Asia, on tidal beaches and under unacceptable conditions from the point of view of safety and environmental protection. This has not always be the same. Looking back, the demolition of (European) vessels has moved from the Europe and Japan during the 60's and 70’s to Asian countries such as Taiwan and South Korea in the 80’s where dismantling took place along piers in connection with ship building activities. As the economy grew in South Korea and Taiwan, labour costs increased making ship dismantling less attractive in these countries.

During the 1980's the method of "beaching"[21] became the most frequent method used for demolition since expensive infrastructures like piers, sufficient depth of the harbour, cranes etc. could be replaced by a mud flat, portable equipment and a huge labour force. As shown in Figure 3 in Annex VII, the South-East Asian countries are nowadays dominating the dismantling industy[22]. Today, 95% of ship dismantling takes place in five countries (Bangladesh, China, India, Pakistan and Turkey)[23]. In these countries ship dismantling provides for employment opportunities, and resources such as scrap metals which are important in particular for the construction sector (Pakistan, Bangladesh, India) and for ship building (China). The current practices have however significant costs in the short and in the long term for human health and the environment.

The EU and Turkey treat today almost exclusively government vessels, including navy ships, and small ships. Both EU and non-EU flagged ships are recycled in the EU.

In 2009, 28 ships which were non-EU flagged have been recycled in the EU.

The three largest vessels were navy vessels from the United States dismantled in the UK. These vessels are not included in the scope of the Hong Kong Convention. The other vessels are all small to medium-sized (from 233 to 3470 GT) and owned by European, Norwegian, Russian or Ukrainian ship owners. These vessels are not expected to be relocated outside the EU for the following technical and economic reasons:

- these ships are usually not designed to navigate in high seas,

- the economic advantage of countries offering low labour costs and low level of mechanisation is less important when the ships are small. The fee applied for transiting through the Suez Canal would also have an important impact for these ships, in particular, as they will have difficulties to arrange for a final journey given their limited capacity and the overcapacity of the shipping market .

As a conclusion, it is expected that the ships which are currently dismantled in the EU would continue to do so and would therefore not be affected by the proposed changes.

Ship dismantling provides for hundreds of jobs but with important short term and long term impacts.

The number of jobs associated with ship dismantling depends upon the dismantling practices. It is pretty limited in the countries which uses the slipway; docking or afloat method[24]. In countries using the beaching method, such as Bangladesh, India and Pakistan the level of mechanisation and the labour costs are low and this industry offers thousands of jobs.

But in these countries, ship dismantling involves high risks for human health both at the time of dismantling (deaths, injuries) and in the long term (asbestosis for example). This is primarily due to dangerous working practices (lack of training and of protective equipement, insufficient precautions against explosions and falling hazards...) and to the hazardous materials on board old ships.

Safety and health conditions in many South Asian facilities are known to be critical but official records are rarely kept, accidents and incidents are underreported and access to facilities by third party is often restricted[25]. Unlike in India where the regional government has started to organise safety training for workers, no systematic accident precautions are at present visible in Bangladesh even if the situation could hopefully improve after a recent judgment from the High Court[26].

Workers are mainly migrant. No workers’union exists at present in Bangladesh, and although many workers believe that a union would bring improvements to their situation, most are averse to organizing one for fear of putting their jobs at risk30. In Pakistan, the Gadani workers have organized themselves into a Ship-breaking Labor Union, which in February 2009 successfully campaigned for a 40 percent wage increase, better working conditions, and improvements in medical facilities. Some reports describe a “pocket” union, composed of “loyal” workers, that has been put in place by the ship breakers to rival the official union, thus denying true worker representation30.

Child labour is still a reality in Bangladesh, as children represent a cheaper work force that is easy to control and unlikely to defend its rights, and even more unlikely to organize into trade unions[27]. The recent judgment from the Supreme Court, if implemented, might improve the situation by prohibiting the use of workers under the age of 18.

Ship dismantling is also hazardous in the long term. It is estimated that thousands of labourers contract irreversible diseases from handling and inhaling toxic substances without proper safety precautions in particular in Bangladesh where most shipbreaking workers do not even have helmets, gloves and shoes to protect themselves. According to a medical report to the Indian Supreme Court of September 2006, 16% of the workforce handling asbestos in Alang (India) showed symptoms of asbestosis and were thus at serious risk of mesothelioma.[28] As is known from medical research, the incidence of this form of lung cancer reaches its peak only several decades after exposure.

Ships contains large amount of hazardous materials which are not treated in an environmentally sound manner thus creating negative impacts

According to estimates from the World Bank, more than 80 000 tons of asbestos, 256 000 tons of PCB, 224 000 tons of Ozone Depleting Substances (ODS) and around 74 000 tons of heavy metals are expected to be sent in ships for dismantling to Bangladesh and Pakistan over 2010-2030. Since there are no formal waste disposal sites in these countries, the waste mainly remain in the facilities and pollutes the water, the beach sediments, the soil of the seashore and coastal habitats[29]. A small part is sold in equipments (PCB or ODS) or sent to rerolling mills (paints)[30].

The dismantling of ships in South Asia takes place on sandy beaches without concrete covering or any other containment other than the hull of the ship itself. One of the traditional "cleaning" methods is the drilling of holes into the beached ship through which sea water can wash out oil-contaminated tanks at high tide. End-of-life ships are rarely pre-cleaned before their arrival. As shown in a study undertaken on behalf of the Commission[31], pre-cleaning is indeed costly and raises particular safety concerns as a ship which is properly pre-cleaned usually has to be towed to the recycling facility. While some stakeholders (European Ship Recycling facilities, environmental NGOs) still insist on pre-cleaning prior to sending the ships for dismantling, others (academia, shipowners) consider that any "pre-cleaning" is better and more economically done close to the site of eventual demolition and not in areas like the EU prior to a lengthy towing.

Whereas in Alang (India) a landfill for hazardous waste (mainly asbestos and glass wool) was built in 2005, and waste reception facilities and asbestos removal cells are in operation on some of the facilities, no such facilities exist currently in Pakistan nor in Bangladesh. In Bangladesh, asbestos is crushed and handled without protective equipment and permeates the demolition zone. In Pakistan, it is buried on-site and the locations are not marked30. Waste oils are dumped into unsealed holes in the ground from where a large part of the toxic material seeps away within a few days.[32]

The current and long term impacts of these unsound practices on the environment

It is often difficult to document the impact of these practices on the environment in detail. Indications exist mainly for the impacts on the marine environment rather than on land conditions or air emissions[33].

In India the responsible regional authority (Gujarat Maritime Board) conducted sampling and analysis of various parameters in coastal water in 2005, and found only "low" or "moderate" levels of hazardous substances[34]. In the context of its recent study commissioned by the World Bank30, soil samplings have been collected and analysed in Pakistan and Bangladesh. They show a widespread varying contamination of the ship dismantling facilities at Chittagong (Bangladesh) with cadmium, chromium, lead and mercury and less contamination at Gadani (Pakistan).

Significant restoration/decontamination would be required in Bangladesh to allow for any change of the land use and to prevent the loss of the pollutants in the event of sea level rise[35], leading to loss of biodiversity and negative impacts for other economic sectors such as fisheries, fish and shrimp farms as well as hatcheries.

2.2. What are the underlying drivers of the problems?

2.2.1. Driver 1: insufficient dismantling capacity within the OECD

According to the Waste Shipment Regulation, end of life ships are hazardous waste and should be dismantled in the OECD only[36].

Several stakeholders mentioned the lack of sufficient dismantling capacity (shipowners, Member States) as one of the main reasons leading to a lack of implementation of the current legislation and, consequently, as one of the main issues to resolve in any possible legislation. At the same time, trade unions also mentioned the need to maintain the existing dismantling capacity and employments in the EU which is mainly devoted to small and navy ships. It is noteworthy that even the limited existing European recycling capacity is not entirely used and that a number of investment projects for green ship recycling in Europe did not materialise. A majority of ship owners indeed prefers to have ships dismantled where the revenue from selling the ships is higher, thus making the establishment of a business case in the EU extremely difficult.

The EU flagged ships represented in 2009 a volume of more than 0,81 million LDT[37]. The existing dismantling capacity in the EU (0,2 million LDT) is sufficient to treat the fishing vessels, navy vessels and other government owned vessels but not all the EU flagged merchant ships. A total of 0,06 millions tons LDT of ships (mainly navy ships and small ships) have been dismantled in the EU in 2009 and only 44 % of these ships were EU flagged ships. During the period 2012-2030, an estimated average volume of 1,64 million LDT of EU flagged ships would need to be dismantled each year31.The existing capacity in the EU is therefore able to treat around 12 % of the volume of all EU flagged ships going for dismantling. The existing capacity is able to treat small ships and government owned ships (including navy ships) but not the total volume commercial EU flagged ships which are expected to be sent for dismantling in the coming years.

According to a study conducted for the Commission[38], the existing capacity is of 60 000 LDT/year in Belgium, 30 000 in the Netherland, 25 to 30 000 in Denmark and 150 000 in the UK while an estimated average volume of 1,64 million LDT of EU flagged ships would need to be dismantled each year during the period 2012-2030. In addition, the existing capacity in the EU is adapted to small and medium sized ships but not to very large ones like Very Large Crude Carriers and Ultra-Large Crude Carriers[39]. In 2009, the largest EU flagged ships which have been sent for dismantling had a draught of 14,5 meters. According to the report of the French Interdepartmental Committee on the Dismantling of Civilian and Military End-of-Life Ships[40], the largest facilities located in the EU could accommodate ships only up to 10-12 meters. The dismantling capacity within the EU is therefore not able to accommodate the largest EU flagged ships.

The dismantling capacity within the EU is therefore not able to accommodate the whole range and the total volume of the commercial EU flagged ships.

Apart from Turkey, the other OECD countries tend to reserve their capacity for the dismantling of their own flagged ships. Turkey can provide for some dismantling capacity (conservatively estimated at 0,05 million LDT per year) even if the total number of facilities is not expected to increase due to geographical limitations.

It is argued that a significant dormant capacity could exist in the EU and in Turkey[41]. But this capacity has not really materialized since it can compete neither with environmentally sound dismantling in countries benefiting from low labour costs nor with unfair practices of unsafe and unsound dismantling.

A significant recycling capacity exist outside the OECD in China, India, Pakistan and Bangladesh.

Responsible European shipowners have invested in safe and sound recycling facilities located in China and applying EU standards. The current existing capacity available in China (2,83 millions LDT in 2009 ) is already largelly sufficient to treat all EU flagged ships by 2030 (the maximum yearly volume in the period 2012-2030 will be of 1,88 million LDT) and a new facility with a capacity of 1 million LDT will shortly start its activities.

2.2.1. Driver 2: An unfair competition in favour of poor quality dismantling

The current situation of the ship recycling market is characterised by fierce competition between the major recycling states Bangladesh, India and (to a lesser extent) Pakistan. According to the prices paid in 2009, the most competitive country is Bangladesh (299 $/LDT) followed by India (273$/LDT ) and Pakistan (271$/LDT )[42].

Other competitors with higher technical standards are only able to occupy market niches for special types of ships like small ships and government vessels including warships [43] (EU and Turkey) or the fleet of committed shipowners (Turkey and China). China, Turkey and EU facilities offered respectively 251, 181 and 82 $/LDT in 2009[44]. Facilities in China, Turkey and the EU are considered to be compliant already with the standards set up in the Hong Kong Convention. Limited investment will be needed in India where facilities have improved after the Supreme Court had decided to turn some key requirements of the, at the time draft, Hong Kong Convention into domestic law. As highlighted in the study from the World Bank30, significant investments in infrastructure, training and protective equipements would however be necessary in Pakistan and Bangladesh.

Contrary to other type of waste, shipowners are paid for getting their ships recycled. From a shipowner's point of view, ship recycling is beneficial and depend mainly upon the price offered by the ship recycling facility or by an intermediate (the "cash buyer").

The costs of transport for the last journey of a vessel to the recycling facility are indeed very limited and not accounted for in general. The final journey is usually relatively short, as the shipowner of, for instance, a cargo ship will often succeed in arranging a last transport of cargo from near his ships present location to a destination close to the recycling facility[45].

Ship owners do usually not sell directly the recycled materials. This task is undertaken by the ship recycling facilities themselves.

As explained in the Impact Assessment accompanying the EU Strategy for better ship dismantling[46], shipowners decide at what point in time a ship will be sent for dismantling based on an economic comparison between the costs (maintenance, renewal of certificates..) and benefits (freigh rates) of maintaining an ageing ship in operating conditions and the benefits of sending it for dismantling. According to Clarkson, the average earnings per days were of 12 674 $ (or 380 220 $ per month).

The choice of the dismantling location is then influenced, in particular, by the price a facility can offer to the intermediary “cashbuyer”or to the ship owner. This price in turn depends on:

· Labour costs: operators in South Asia employ many unskilled labourers at extremely low wages of about 2,5 dollar per day[47]. Detailed information about the labour costs are provided in Table 14 in Annex VII.

· Costs of infrastructure for worker's safety and environmental protection which are linked with the dismantling methods employed as well as the existence and the level of implementation of national and international regulations regarding workplace safety and environmental impacts.

Table 1:Dismantling locations of large EU flagged commercial ships in terms of percentage of total recycling (GT[48] based) in 2009 23.

Dismantling location for EU flagged - ships || Main dismantling method || Dismantling fraction of total

India, Pakistan, Bangladesh || Beaching || 69,81%

China || Afloat || 22,75%

OECD non EU || Landing, afloat || 6,36%

EU || slipway, docking || 0,85%

Other || 0,23%

Total || 100,00%

In terms of method and infrastructure, more than 2/3 of large commercial EU flagged ships[49] (in terms of tonnage) have been dismantled in 2009 in India, Bangladesh and Pakistan in “beaching” facilities which do not require heavy machinery. According to the World Bank30, there are virtually no obligations applied to ship dismantling facilities in Pakistan and Bangladesh in terms of compliance with any health or environmental standards or inspection by the authorities. So investment in permanent structures and machinery at the facilities continues to be very limited. Only India has developed some central infrastructure for hazardous waste management, workers’ training and health care[50]. The Chinese government has prohibited beaching some years before and closed down all the existing facilities using this method. Important investments notably from European shipowners have been made in order to develop the existing facilities which are operated largelly according to EU standards, to create new ones, to train the workers and regarding the handling of hazardous waste[51].

Other factors affecting costs include:

· The domestic market demand for steel scrap and goods present on board ships. Scrap steel from ship is indeed a valuable raw material and higher price for metal can be paid if it can be recycled “cold”, without energy-intensive and thus expensive re-melting in electrical furnaces,

· Tariffs and duties.

The better price for steel scrap[52] from ships are paid by operators in Bangladesh where the standards of workers’ safety and pollution prevention are the lowest[53], and most steel was processed without melting in re-rolling mills. India and Pakistan offer similar prices while China and Turkey offer lower prices.

There is thus a strong economic incentive for ship owners who are not willing to act responsibly to choose recycling facilities with a particularly poor social and environmental standard. Other countries like China, Turkey and several EU Member States with capacity for ship dismantling in dry docks, at piers and on hard slipways only account for a smaller fraction of the market as they are typically priced out of the market.

Current situation and likely evolution of the ship recycling market:

According to one of the major "cash buyers" (GMS), Bangladesh was the most competitive country in August 2011. It offered prices comprised between 500 and 525 US$/LDT. India is ranking second with prices comprised between 495 and 520 US$/LDT, followed by Pakistan (485 to 510 US$/LDT) and finally China (450 to 465 US$/LDT). Since large commercial vessels are currently not sent for dismantling in Europe, it is difficult to collect updated information. Using as a proxy the price recently paid by Turkey for a large navy vessels from the UK, the prices offered are in the range of about 150 $/LDT.

Forecasting the evolution of the market and in particular the share between the different recycling countries is linked with a great uncertainty. The dismantling costs offered by the facilities are indeed fluctuating strongly since they depend upon the economic situation (evolution of the shipping market) as well as upon the legal situation in the countries (the dismantling facilities have, for example, been closed in Bangladesh for the last months by the High Court).

According to the latest information available:

- the facilities located in China and Turkey are already operating under the standards of the Hong Kong Convention. The ship recycling capacity in China will expand significantly since a very large recycling facility is about to start operating in Dalian. It will be able to receive 75 ships per year including the largest ships of the world fleet.

- India has already made some improvements after the judgment from its Supreme Court which included some requirements of the (at the time) draft Hong Kong Convention into domestic legislation. It has benefited during the last months from the administrative closure of the dismantling facilities in Bangladesh. A recent inspection showed however that the landfill for hazardous waste is almost full[54] and that a new one should rapidly be developed.

- Bangladesh has been closed for several months and is expected to invest in upgrading its facilities following recent judgments from its High Court which has made some of requirements of the Hong Kong Convention mandatory. From an economic perspective, the investments needed to upgrade the facilities to a level of compliance with the Hong Kong Convention are of about 10 to 11 $/LDT[55] while the profits generated by the facilities are of 62 $/LDT. Bangladesh is therefore expected to upgrade its facilities because:

· ship recycling is the major source of raw material for the industry,

· it will be necessary in order for the facilities to be allowed to continue their operations,

· facilities would continue to be profitable and competitive after the improvements.

- Pakistan has already benefited from technology transfer and is willing to improve its facilities. For several years, it was virtually driven out of the recycling market in particular due to its taxes and duties. Ship recycling has started again notably because of closure of the facilities in Bangladesh. Investments have been estimated at around 10 $/LDT which is comparable with the current profit generated by the facilities. It might therefore be slightly more difficult for Pakistan than for Bangladesh to make the necessary improvements for compliance with the Hong Kong Convention while staying competitive. Facilities located in Pakistan already encounter taxes and duties which are 2,6 times more important than those located in Bangladesh.

According to a recent study conducted by the World Bank30 the likelihood of seeing new countries emerging as major ship scrapping destinations once the standards and therefore the costs of existing facilities have been upgraded is limited.

Three possibilities for a relocation from the ship dismantling industry from Pakistan and Bangladesh were assessed: a relocation to another "pollution haven", a relocation back to Europe or an industrialized country and the pre-cleaning in country of ownership. The two latest options were considered as highly unlikely for economic reasons (the lower revenue and higher costs associated with dismantling in European and industrialised countries and the importance of the additional cost induced by pre-cleaning).

The first option was studied in more details and is also considered as unlikely although it cannot be ruled out. The necessary characteristics of a potential candidate country are the following:

- Strong domestic demand for steel plate and re-bars not readily available from other sources,

- A market for equipment and consumables,

- Few, if any, enforced regulations on workers’ health and safety and environmental pollution,

- Wages as low as in Bangladesh or lower. Cambodia and Myanmar both have lower wage rates than in Pakistan, whereas Bangladesh might still be able to compete with them. Hence, the risk of relocation from a wage point of view seems more threatening for Pakistan

- Natural hydrographical conditions to allow beaching (or similar capital-extensive methodology). Few states meet these requirements, and the need for a considerable tidal gauge itself is an obstacle for most of Africa or other candidate countries in the Bay of Bengal or the South China Sea (such as Myanmar or Cambodia).

Given the relatively low likelihood of meeting all these conditions in other locations, the study did not considered it likely to see relocation on a large scale of ship recycling from Bangladesh and Pakistan in the immediate future. This does however not totally rule out the possibility of seeing new ship recycling countries emerging with a small share of the market. The Philippines have expressed interest during the last months in developing ship recycling and ratifying the Hong Kong Convention.

Building upon the experience gained during the last decade, the following drivers have stimulated the upgrading of ship recycling facilities:

– Political willingness from the public authorities to promote specifically the green ship recycling market (Turkey, China),

– Court cases imposing new requirements (India, Bangladesh),

– Investments and contractual requirements of commited shipowners (Turkey, China),

– Collaboration between facilities in order to jointly invest in the infrastructure (Turkey),

– Public pressure through, for example, reports from NGOs (Turkey , India, Pakistan).

A couple of years before, Chinese authorities decided to close down all their substandard facilities and to focus on the green ship recycling market. Beaching was therefore prohibited by the law. Strategic partnerships have been developed between Chinese facilities and responsible shipowners (in particular European and Japanese ones). The later invested in the upgrading of the facilities which would reserve a certain ship recycling capacity for them in case of huge recycling demand. China continues to develop its ship recycling capacity within its approach of a circular economy. Contrary to other recycling countries, the scrap metal is indeed used strategically to produce new ships and not for construction work.

2.2.2. Driver 3: the regulatory failure of a legislation not well adapted to the particular characteristics of ship.

The experience gained regarding the implementation of other waste-related legislative instruments with enforcement problems bring only limited pertinent information for ship recycling due to the specificities of ships and international shipping. Compared to electronic waste, ships can, for example, change their location since they are self-movable (thus rendering the notion of "state of export" difficult to apply) and can change their legal regime (by changing flags). Another important difference is that while a significant effort, triggered by EU legislation, is being made to develop recycling capacity for WEEE and end-of-life vehicles in the EU, the recycling capacity for ships in the EU is (and will remain) clearly insufficient.

When asked during the public consultation about the ways to improve the enforcement of the current legislation, several stakeholders (shipowners, Member States, academia) insisted that this legislation is not adapted to the particularities of ships as waste. In particular, this is due to the difficulty to identify when a ship becomes waste and the possibility to change its flag[56]. Indeed, there have been very few clear-cut cases where ships became waste while being under EU jurisdiction and being in EU waters and were still send to facilities outside the OECD countries.

Identifying when ships turns into waste.

As explained before, shipowners decide to send their ships for dismantling based on an economic comparison between the costs and benefits of maintaining a ship in operating conditions and the benefits of sending it for dismantling.

If this decision is taken while the ship is in international waters or in waters under the juridiction of the recycling state, it is very difficult or impossible to apply the procedures of the Waste Shipment Regulation, in particular for ships which are registered under non-EU flags. Moreover, commercial ships leaving European ports and waters usually optimize their last voyage by delivering goods in Asia prior to going for dismantling. If the ship-owner does not declare the intention to dismantle its ship when leaving an EU port, the relevant authorities can in general not intervene. It is also not uncommon to sell a ship to another operator under the pretence that the ship would continue trading when it is then actually transferred directly to a ship dismantling facility.

As announced in the Communication, the Commission took steps during the last years when it was alerted that specific ships would go for dismantling. It has contacted the Member States concerned (flag state, port state and even state of nationality of the owner) in order to verify that these individual ships would not go for dismantling. However, in a certain number of cases, shipowners declared that the ships would continue to be used and that it was not intended to be sold. Since port states can not block unduly ships without justification, Member States had to release the ships based on the evidence produced by the owners. Some Member States even informed recycling states about the risk of seeing a particular EU flagged ship illegally arriving in their facilities. Recycling countries have however not required these ships to be reimported to the EU as they are entitled to do according to the Basel Convention. Most recycling countries — with the exception of Turkey — are indeed reluctant to use the Basel Convention's procedures of notification and consent for ships imported for dismantling, as it goes against their financial interests.

The possibility to change flag.

Every ship has to be registered under a flag. The flag state, as defined by the United Nations Convention on the Law of the Sea, has overall responsibility for the implementation and enforcement of international maritime regulations for all ships granted the right to fly its flag. Changing flag, which can be done with very limited effort in time and expenditure, allows the shipowners to change the legal regime for the ship.

The large majority of stakeholders (shipowners, Member States, environmental NGOs...) commented on the difficulty for enforcing legislation given the ease with which owners can change flags.

The current Waste Shipment Regulation is applicable to EU flagged ships as well as ships which are in the exclusive economic zone with regard to the protection and preservation of the marine environment within this zone. This Regulation would therefore not allow EU Member States to prohibit the export of a non-EU flagged ships (irrespective of whether they are owned or not) based on the possibility that this ship would create environmental negative impacts in third countries.

Change of flag prior to dismantling is already a reality since EU flagged ships represented 17,6 % of the active fleet[57] but only 8 % of the ships at the time of dismantling[58] in 2009 and 15,1 % in 2008. It is driven by several factors which are presented in Annex VI. Certain flags offer specific short term/single voyage registration for around 10 000 dollars (for a Panamax ships this would represent 1 $/LDT) which is a negligible cost compared with prices offered by the recycling facilities. The difference in offer prices between facilities in OECD countries and Asian beaching facilities can amount to several hundreds of dollars depending on the actual market situation and on the type of ships[59]. In addition, some shipowners prefer to sell their ships to brokers (called "cash buyers") instead of negotiating directly with ship dismantling facilities[60].

2.3. Who is affected, in what ways, and to what extent?

2.3.1. EU Member States as flag states, port states and recycling states

EU Member States have to apply the existing legislation (Waste Shipment Regulation) and are expected to become Parties to the Hong Kong Convention which will have implications on them as flag states (17% of the world fleet is EU flagged), recycling states (mainly for small ships and military vessels) and port states (for port state control).

2.3.2. EU ship owners

EU ship owners want to sell their ships at the best possible price. Faced with the lack of recycling activities in the OECD, some responsible shipowners have invested in green facilities located outside the OECD (China) to secure sufficient capacity while benefiting from low labour costs. Others are choosing their recycling facilitiy by only taking into account the price offered for their ships by the dismantling facilities and by totally disregarding the environmental and social impacts.

The implementation of the Hong Kong Convention will imply administrative costs and reduced benefits from selling their ships for dismantling since dismantling facilities are expected to pass on the majority of the additional costs linked with the improvement of their practices.

2.3.3. EU ship dismantling facilities

The implementation of the Hong Kong Convention will have very limited implications since they are already complying with labour and environmental requirements which are stricter than the Hong Kong Convention. They are expected to continue to dismantle small ships which are not expected to be sent in South Asia for safety (navigation in high seas) and economic reasons. Governement and navy vessels are not per se in the scope of the Hong Kong Convention but Members of the IMO have to ensure that such ships act in a manner consistent with the Convention "so far as is reasonable and practicable"[61].

2.3.4. Third countries (recycling countries)

Ship dismantling provides for employment and is a source of raw materials and used goods but is associated with significant impact on the human health of workers in the dismantling facilities as well as on the environment of the communities (see section 2.1).

2.4. How would the problem evolve, all things being equal?

Large numbers of ships are expected to be sent for dismantling in the coming years as a result of an overcapacity of the world fleet which is estimated to remain for at least 5 to 10 years30. Before 2008, old ships were kept in service[62] and significant amount of ships were ordered in order to benefit from the high freight rates. As a follow-up of the financial crisis, the demand for maritime transport has decreased and the freight rates have sharply decreased. On top of sending ships for dismantling, several actions have been taken by shipowners in order to reduce the overcapacity of the world fleet: cancellation of orders for new ships (482 in 2009 and 929 in 2010) 20, laying up of ships (around 1000 ships139 in January 2011) or voluntary slowing down ships ("slow steaming"). They are however insufficient as the world fleet in service has grown by 10.1 % in terms of carrying capacity in 2010 compared to 200920. In 2009 and 2010, around 3 new ships were delivered for each ship sent for dismantling. The evolution of the world fleet from 2004 to 2009 is presented in Figure 8 in Annex VIII.

In addition, the coming peak in ship recycling around the phasing-out dates for single-hull tankers (2015) is expected to essentially benefit the most primitive sub-standard facilities.

The expected evolution of ship recycling in the major recycling state has been presented in section 2.2.

If the Hong Kong Convention does not enter into force and if the European legislation is not modified, it is highly probable that the current market situation and important level of non-compliance will persist. A peak in dismantling activity is bound to lead to a resurgence of lethal accidents and occupational diseases, as the new staff will be recruited among the poorest and usually inexperienced rural labourers.

Even in the scenario of a recovery of the economy - and a resorption of the world fleet's overcapacity, fewer ships will be sent for dismantling thus leading to a. more fiercely competition amongst ship recycling facilities in favour of the substandards ones.

2.5. International and national policy approaches

The Hong Kong Convention was adopted in May 2009 but is not expected enter into force and to start producing effects before 2020. Conventions from the IMO usually contains entry into force provisions related to flag states only (number of states and/or, percentage of the world fleet) and take an average of 6 years to enter into force[63]. But the Hong Kong Convention needs to to be ratified by both major flags states and recycling states which will take longer. More detailed information about the entry into force requirements of the Convention is provided for in Annex IV.

According to the latest information available[64], China is expected to ratify the Hong Kong Convention in 2012 and Japan in 2013. Turkey is making good progress, but seems reluctant to be the first recycling country to ratify. India has the support of the government executive for ratification, but is facing problems with its recycling associations.

In June 2011, 11 Member States plus Norway reported on their progress towards ratification. Two countries are aiming at ratification by the end of 2011. Several Member States agreed that EU legislation would be helpful for ratification. Some countries cannot though ratify without having legislation in place.

The Council conclusions[65] adopted in 2009, encouraged strongly EU Member States to ratify the Hong Kong Convention as a matter of priority so as to facilitate its entry into force as early as possible and to generate a real and effective change on the ground.

The Hong Kong Convention applies to most privately owned and commercial ships. The Convention does not apply to small ships (less than 500 GT), warships, naval auxiliary or other state-owned or operated vessels which are used only on non-commercial service or ships used exclusively for domestic transport throughout their life. However, the Convention requires that these ships act in a manner consistent with the Convention, "as far as reasonable and practicable".

The Hong Kong Convention requires ships flying the flag of a Party ("Party ships") to be dismantled only in authorized recycling facilities located in another Party to the Convention ("Party facilities"). Party facilities would be allow to treat also non-Party ships provided that they treat them similarly to Party ships (clause of "no more favourable treatment").

To be authorized, facilities will have to comply with the detailled requirements of the Convention regarding safety, the protection of human health and the environment and they will have to be subjet to a site inspection from the authorities. The Hong Kong Convention does not contain requirements which would explicitely rule out the "beaching" method which has been controversial because of its environmental and health impacts. Ships will have to minimize and document (Inventory of Hazardous Materials) the amount of hazardous waste present on board. Based on this inventory and on its authorization, the ship recycling facility will develop a ship-specific document (Ship Recycling Plan) to describe how this particular ship will be dismantled and how the hazardous waste will be managed in the facility. The shipowner will have to inform in writing its flag state about the intention to recycle the ships and then to provide the Inventory of Hazardous Materials (IHM) and the Ship Recycling Plan (SRP) to its flag state. The latter will conduct a final survey on board the ship to verify that the IHM is complete, that the SRP properly reflect the IHM and about the maintenance of safe working conditions for workers and, finally, that the ship recycling facility is authorized. The ship recycling facility will inform its authorities of the start and the completion of the recycling. The authorities will inform back the flag state of the completion of the dismantling.

The Parties to Basel Convention have been invited to assess the equivalency between the levels of control and enforcement of the Hong Kong Convention and the Basel Convention and to transmit the outcomes of the assessment to the 10th Conference of the Parties "for consideration and action, as appropriate"[66]. The assessment developed by the European Commission and the Member States has been submitted on the 15 April 2011 concludes that "as a preliminary assessment and taking into account a life cycle perpective the Hong Kong Convention provides a level of control and enforcement at least equivalent to the Basel Convention's one"[67].

Since it does not contain any geographical limitation, the Hong Kong Convention will allow ships flying the flag of Parties to be dismantled worlwide in facilities authorized by other Parties.

The Hong Kong Convention is adapted to the specificities of shipping since it relies on the system of international surveys and certification for ships during their life cycle, on port state controls. Moreover, it contains an obligation for shipowner to inform in writing and in advance their flag state of their intention to recycle their ships, thus resolving the current problem of identifying when a ship turns into waste.

Facilities located in Parties to the Hong Kong Convention will have to treat similarly ships flying the flag of Parties to the Convention and ship not flying the flat of Parties ("no more favourable" clause) thus limiting the incentive of changing flags only in order to benefit from a more favourable legal regime. As long as the 5 major ship recycling states which represent more than 90 % of the dismantling activity are Parties to the Convention, there will be major improvements compared to the current situation. One possible problem would be faced if one or two recycling countries decides not to join the Hong Kong Convention. In this case, there will continue to be two markets competing which each other: one with substandards facilities offering better prices for shipowners and another one compliant with the Convention. And since changing flag is legal, easy and negligible[68], one can expect that some shipowners would continue to change flags in order to circumvent the legislation. In order to help countries lagging behing to improve their facilities, financial and technological support is therefore currently provided through specific programms undertaken under the Global Programme for Sustainable Ship Recycling jointly set up by the IMO, the ILO and the Secretariat of the Basel Convention.

The development of the Hong Kong Convention has already had a positive influence on the evolution of the legislation in Bangladesh and India where the High and Supreme Court have already included some requirements of the Hong Kong Convention domestically.

However, as noted already in the Communication on better ship dismantling, the Convention rely in particular on a system of surveys and certificates for ships and on authorisations for ship recycling facilities granted by the competent authorities of recycling states. This approach reflects the high value of national sovereignty in international law.

A potential weakness of the control system is that the existing governance problems in some developing countries and the lack of an non-compliance mechanism in the Convention might reduce its effectiveness in practice. As explained in the report of a recent site visit of the Standing Monitoring Committee on Shipbreaking Yards at Alang[69], Fake certificates have been submitted by ship owners or their agent and neither the Gujarat Maritime Board not the customs were able to verify the authenticity/genuineness of ship’s registry/flag in the fast in respect of some ships referred to them.

The Hong Kong Convention is applicable only to the ship recycling facility but not to the facilities involved in the downstream management of the waste. The Convention contains an obligation for the facilities to identify the facilities to which hazardous waste will be sent for treatment. It does however not ensure that the waste will actually end up in the proper facility which had been identified since no traceability is foreseen. This is problematic since some recycling countries are know for not having any facilities authorize and able to treat hazardous waste (Pakistan, Bangladesh) while the hazardous waste landfill in Alang (India) is almost full.

Another remaining issue with the Convention is that it does not explicitely address the "beaching" method which is currently used in the major recycling countries and has been criticized for its environmental and health impacts. The environmental NGOs, some associations of green recyclers and some shipowners as well as the European Parliament have called for a total ban on beaching. The Council has underlined in its conclusions, that the Hong Kong Convention represents "an important step towards phasing out unsafe and environmentally harmful working methods, including in relation to unsafe aspects of the current practise of so called beaching of end of life ships" but has not called for a prohibition on beaching. Shipowners and other stakeholders have on the other hand highlighted the fact that "beaching" is the major dismantling method.

2.6. Industry approaches

During the public consultation, the importance of voluntary actions by the shipping industry was highlighted by the shipping industry itself but also by the Member States and the European Economic and Social Committee.

The shipping industry established in 1999 an Industry Working Group on Ship Recycling which is coordinated by the International Chamber of Shipping (ICS). Its members have been actively involved in the development of the Hong Kong Convention. The industry has taken voluntary action to start implementing the Hong Kong Convention once adopted.

In October 2009, this Working Group adopted "Guidelines on transitional measures for shipowners selling ships for recycling" providing guidance for shipowners on how to voluntarily apply certain elements of the Hong Kong Convention before it enters into force. After the adoption of the Guidelines on the Inventory of Hazardous Material[70], shipowners have used them on a voluntary basis. Based on their experience, they have proposed some update and amendments of the guidelines which have been approved in July 2011.

In addition, one association (BIMCO) will adopt a new “green” ship recycling contract and a revised version of its contract for the sale of second hand vessels (SALEFORM 93) in January 2012. However, voluntary action by the Industry is limited by the facts that:

- the voluntary application of the Hong Kong Convention is not always compliant with the current legislation (for example, sending ships for recycling outside the OECD ).

- some stakeholders (ship recycling facilities, environmental NGOs) have highlighted in their response to the public consultation that they do not consider non-legislative measures to be effective since they have had little impact so far. Prior to the development of the Hong Kong Convention, shipowners agreed to voluntary develop the so-called Green Passport (the ancestor of the Inventory of Hazardous Materials). But a limited number of passports have in fact been developed. BIMCO had also previously developed ship recycling contract which have been used by a very limited number shipowners only. New voluntary measures are therefore most likely to follow a similar path.

European classification societies have been very active in the development of the Hong Kong Convention as this could represent new business opportunities for them: for the establishment of Inventories of Hazardous Materials, for certifying ships (as recognized organisations on behalf of flag states) or recycling facilities (as recognized organisations on behalf of recycling states or if asked by the facilities themselves on a voluntary basis).

2.7. The right of the EU to act

Treaty base

The EU competence to take action on ship dismantling matters comes in particular from the articles of the EU Treaty related to the protection of the environment (article 192 of the Treaty on the Functioning of the European Union, TFUE).

The "necessity test"

Ship dismantling is already covered by European legislation namely the Waste Shipment Regulation. But the current legislation is not adapted to the specificities of ships and is therefore largelly circumvented and therefore ineffective. The European legislation would therefore need to be modifiedeven in the absence of the Hong Kong Convention.

Subsidiarity principle

The subsidiarity principle applies insofar as the proposal does not fall under the exclusive competence of the EU.

As a Party to the Basel Convention, the European Union has the obligation to block the export of hazardous waste in countries which are not able to treat them in an environmentally sound manner. The EU has therefore an obligation to ensure that EU flagged ships are recycled in a safe and sound manner worldwide. In addition, it would be difficult to justify that the pollution generated by the dismantling of ships flying the flag of EU Member States is exported to third countries which are not equipped to deal with it in an appropriate manner. The environmental problems generated by ship recycling are not only local since hazardous chemicals are released directly into the sea thus affecting the fishes and shrimps which are captured and exported also outside the country.

The Commission can not ratify the Hong Kong Convention since only Member of the IMO are allowed to doso and become Parties to this Convention. The EU Member States will therefore have a key role, mainly as flag states, in the ratification and fulfillment of the entry into force provisions of this Convention. As explained in Annex VI, the ratification and transposition of the Hong Kong Convention by EU Member States is likely to take place at different pace. There is a clear risk of having different legal requirements applied to large commercial EU flagged ships depending on the different Member States concerned. This situation could result in change of flags and unfair competition between the Member States acting as flag states. As highlighted by some Member States in their response to the public consultation, a harmonised transposition at the European level ensures a more level playing field and reduces administrative burdens for ship owners and recycling yards in the EU, compared to the implementation of the IMO Convention in the the European Union by 27 diverging versions of national legislation.

In addition, some Member States are not prepared to ratify the Hong Kong Convention as long as long as the current EU legislation is not modified and the risk of a duplication of requirements applicable to ship recycling is not ruled out. Member States having ratified the Hong Kong Convention could be required to apply the requirements of this Convention through their domestic legislation as well as the requirements of the Waste Shipment Regulation. These two sets of procedures are largelly redundant and duplicating but also incompatible on some issues (see for example the geographic restrictions regarding the legally accessible ship recycling facilities). This would result in a very confusing situation and in increased non-compliance while none of the drivers identified in section 2.2. would be addressed.

Maintaining the current legislation would therefore not address any of the problems currently faced but could delay or block the ratification of the Hong Kong Convention in a number of Member States.

The inclusion of the Hong Kong Convention's requirements into European legislation would on the other hand promote harmonised decision-making and speed up the ratification process amongst the Member States. During a workshop organized in EMSA in June 2011, 11 Member States indicated that they are in the process of ratifying the Convention, although at different stages. The majority of EU Member States considered that an EU legislation implementing the Hong Kong Convention would be useful for their own ratification process. A proposal for a Council decision authorising Member states to ratify or to accede to, in the interests of the European Union, the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships, 2009 will therefore be jointly presented with this proposal for a Regulation to ensure a swift and coordinated ratification of the Convention by all Member States.

In addition, early action by the EU would influence third countries much more than action by individual Member States and thus is more likely to bring the Hong Kong Recycling Convention quickly into force.

Proportionality principle

The proposal complies with the proportionality principle. The additional burdens for economic operators and national authorities are limited to those necessary to that ship recycling is undertaken in a safe and environmentally sound manner. While the proposal implies additional costs for the shipowners (development of the Inventories of Hazardous Materials and surveys), these costs are expected to be offset by the substantial social and environmental benefits obtained.

Going beyond the requirements – in a limited way - of the Hong Kong Convention is needed in order to address the limitations of the Convention presented in section 3.5 namely:

- address the current governance problems in some recycling countries,

- ensure the proper downstream management of the hazardous waste,

- introduce specific requirements to phase out the current unsafe and environmentally unsound recycling methods.

3. Policy objectives

3.1. General objective:

The general objective is therefore to reduce significantly and in a sustainable way by 2020 the negative impacts of ship dismantling, especially in South Asia, on human health and the environment without creating unnecessary economic burdens by facilitating the entry into force of the Hong Kong Convention.

While EU legislation can only address ships flying the flag of EU Member States, it is expected that it could have a positive effect also on ships which are EU-owned but flying flag of non-EU countries.

3.2. Specific objectives:

· SO1: reduce the human health and environmental impacts by ensuring that the EU flagged ships are dismantled only in safe and environmentally sound facilities worldwide,

· SO2: ensure the availability of sufficient and economically accessible sound and safe recycling capacity to dismantle EU flagged ships,

· SO3: strengthen the incentives to comply with the EU legislation,

3.3. Consistency of the objectives with fundamental rights

Measures designed to meet the objectives will need to be in compliance with relevant fundamental rights and principles embodied in the Charter of Fundamental Rights of the European Union. Aiming at improving the impacts on human health and on the environment of the dismantling of EU ships will have to take into account as well as the freedom of right and association (article 12), the worker's right to information and consultation with the undertaking (article 27), the right of collective bargaining and action (article 28), the right to fair and just working conditions (article 31) and the prohibition of child labour and protection of young people at work (article 32) as well as on the environmental protection (article 37).

4. Description of policy options

The EU Strategy on better ship dismantling3, proposed a new EU initiative consisting of a mixture of legislative as well as of the following non-legislative measures. After its publication, inputs and comments have been received from the Council, the European Parliament, the European Economic and Social Committee as well as from stakeholders during the public consultation and workshops. In addition, studies have been conducted in order to further assess the feasibility of some actions. The table below presents the follow up actions undertaken by the Commission.

Action announced in the Strategy || Actions undertaken by the Commission

Participation of the Commission, as an observer to the IMO, in the development and future implementation of the guidelines supporting the Hong Kong Convention, || The Commission has participated in the development of the guidelines supporting the Hong Kong Convention. The Commission has actively participated to the intersessional working groups developing the guidelines and was represented during the meetings of the Maritime Environment Protection Committee which reviewed and adopted them. At this stage, two guidelines (dealing with the inventories of hazardous materials and with the development of ship recycling plans)[71]. have been adopted. The Commission will continue to actively participate in the further development of the others guidelines supporting the Hong Kong Convention which are currently under development[72].

Voluntary action by the industry prior to the entry into force of the Hong Kong Convention, notably the implementation of the Convention's technical guidelines || See section 3.6

Conducting occasional research and pilot projects to assess developments and promote better ship dismantling technologies || In order to assess developments and to promote ship dismantling technologies, both research and pilot projects have been launched and are currently running: - under the 7th European Research Framework Programme, a specific project called DIVEST (Dismantling of Vessels with Enhanced Safety and Technology) is currently undertaken[73]. Information collected during this project on the composition of ships in hazardous materials have been transmitted to and taken into account by the consultant in charge of the study supporting the Impact Assessment. - a pilot project called RECYSHIP[74],financed under the LIFE+ program in the action line of “Environment Policy and Governance”,has started in 2009 and will last until 2012. It aims at addressing the issue of ship scrapping in matters of occupational safety, health and environmental protection.

Further assess: - the option to include in the ship recycling measures, amongst others, rules for the clean dismantling of warships and other government vessels. - encourage voluntary action by the industry - improve enforcement of the current waste shipment law with regard to end-of-life ships - the feasibility of developing a certification and audit scheme for ship recycling facilities worldwide. || - see option E1 in section 4, - see section 3.6 -see section 2.2.2 - see option D3 in section 4.

Additional actions have been undertaken by the Commission.

At international level, the Secretariats of the Basel Convention, of the International Maritime Organization and of the International Labour Organization are indeed working together under the "Global Programme for Sustainable Ship Recycling"[75] which aims at offering a coordinated approach in addressing the issues faced by the ship recycling industry.

Under this programme, a Ship Recycling Technology & Knowledge Transfer Workshop took place in Izmir, Turkey, in July 2010 to assist the government officials and industry of Pakistan to strengthen their regulatory, institutional, procedural and infrastructural capacity to fulfil the relevant aspects of the Basel Convention in relation to ship recycling, particularly those dealing with the downstream management of hazardous and other wastes, and the Hong Kong International Convention.

The Commission provided a grant under the Thematic Programme for the environment and sustainable management of natural resources, including energy (ENRTP) to this program with a view to provide support to the recycling countries wishing to improve their practices.

The government of Norway will provide six million dollars in bilateral aid through its development agency NORAD to Bangladesh.

Finally a pilot project is assessing the current practices for recycling of ships not covered by the Hong Kong Convention and abandoned vessels within the EU.

4.1. Option A: the baseline option

The "baseline option" is defined here as maintaining the Waste Shipment Regulation unchanged in the short (2015), medium (2020) and in the long term (2025).

As announced in the Council conclusions on better ship dismantling[76], Member States are expected to ratify and implement the Hong Kong Convention in their domestic legislation. This Convention is expected to enter into force in 2020. The first positive impacts of the Hong Kong Convention are expected to be foreseable in 2020 where ships going for recycling will have to establish inventories of hazardous materials. But the full effect of the new international regime is not to be expected to be seen before 2025 since there are separate deadlines for compliance with the various requirements - for instance 5 years after entry into force for an Inventory of Hazardous Materials to be present in existing ships (as opposed to new ships). Some Member States explicitly mentioned in their contribution to the public consultation the need to maintain these separated deadlines.

All recycling countries where there are currently substandard facilities are expected to be able to be upgraded in order to meet the Hong Kong Convention's requirements by 2020. Since the Waste Shipment Regulation would continue to be applicable, ships flying the flag of EU Member States would however always be prohibited to be recycled outside the OECD, even if this would be authorized under the Hong Kong Convention. The legally accessible recycling capacity (within the OECD) is not expected to be substantially improved and will remain inadequate. It is this therefore foreseeable that even responsible shipowners would continue to send their ships for dismantling outside the OECD.

The level of control and enforcement from Member States is indeed expected to remain similar as today. An increased level of enforcement would indeed be costly and ineffective since ships can be expected to change their flags in order to be able to be recycled outside the OECD where the recycling capacity lies. The current situation of large circumvention of the legislation is expected to be maintained in the short, medium and long term. Like this is the case today, substandards facilities are expected to benefit more than other non-OECD ones from this situation. The assessment of the impacts of this option are therefore based on the assumption of a high level of circumvention benefiting primarly to the substandard facilities. Real improvements from an environmental and health perspective are not expected prior to 2020 where all ship recycling facilities are expected to have made the necessary investments in order to comply with the Hong Kong Convention.

4.2. Option B: implementing key elements of the Hong Kong Convention in the current European legislation.

This option was the preferred one identified in the Communication proposing an EU strategy on ship dismantling. It would a priori address partially the inadequacy of the current legislation by introducing control mechanisms specifically designed for ships. It would consist of completing the Waste Shipment Regulation by implementing some key elements of the Hong Kong Convention by 2014 :

· Survey and certificate requirements for ships, in particular, to carry an Inventory of Hazardous Materials on boards and to be certified as "ready for recycling" before going to a dismantling facility,

· Essential requirements for ship recycling facilities as established by the Hong Kong Convention,

· Communication and reporting requirements for shipowners, recycling facilities and recycling states.

In addition, the Member States would be encouraged to ratify the Hong Kong Convention by 2020 and the Convention is expected to enter into force at this date.

Similarly to option A, since the Waste Shipment Regulation will continue to constitute the core of the control mechanism covering end-of-life ships, the prohibition to dismantle EU flagged ships outside the OECD would be maintained even in facilities which would be authorized under the Hong Kong Convention.

A huge level of circumvention of the legislation is therefore to be expected which will benefit mostly to substandard facilities. The assessment of the impacts of this option are therefore based on the assumption of a high level of circumvention benefiting primarly to the substandard facilities. Real improvements from an environmental and health perspective are not expected prior to 2020 where all ship recycling facilities are expected to have made the necessary investments so as to comply with the Hong Kong Convention.

4.3. Option C: addressing the dismantling of large commercial vessels through domestic legislation of the EU Member States only

Under this option, ships covered by the scope of the Hong Kong Convention (large seagoing vessels) would be exempted from the scope of the Waste Shipment Regulation and, contrary to the options A and B, would not be covered anymore by European legislation. They would be covered instead by the domestic legislation of Member States as they ratify and implement the Hong Kong Convention. The transposition of the Hong Kong Convention will be left entirely to European Member States.

A priori, this option has the potential to address the lack of the available recycling facilities by removing the prohibition to dismantle ships outside the OECD. Since they will not be subject to the requirements of the Waste Shipment Regulation, ships will be able to be legally dismantled worldwide prior to the entry into force of the Hong Kong Convention. For this reason, it is assumed that 50 % of the volume of ships currently dismantled in the EU, in Turkey and in China will be dismantled in India, China and Bangladesh prior to the entry into force of the Convention. Since substandard facilities would be able to legally receive more EU flagged ships, they are expected to delay their investments in order to upgrade their facilities. All recycling countries where there are currently substandard facilities are expected to be upgraded and meet the Convention's requirements by 2025 only.

In addition, in order to remain competitive and avoid reflagging to other flags (both EU and non EU ones), it is expected that the rate of ratification will be notably different amongst EU Member States.

Because of these delayed ratifications by both flag and recycling states, the Hong Kong Convention would in this scenario not enter into force before 2025. The first beneficial effects of this Convention would therefore be seen in 2025 and the full beneficial effects in 2030 (inventories of hazardous materials for all ships).

Once Member States will have developed their domestic legislation tranposing the Hong Kong Convention, this option would also ensure that the legislation applicable to the dismantling of end-of-life ships is adapted to ships.

4.4. Option D: covering ship dismantling by specific rules implementing the Hong Kong Convention

Under this option, ships covered by the scope of the Hong Kong Convention (large seagoing vessels) would be exempted from the scope of the Waste Shipment Regulation. They would instead be adressed in a new ad-hoc Regulation covering the whole life cycle of ships transposing the requirements of the Hong Kong Convention while adapting and complementing them when necessary.

Since the Hong Kong Convention has not yet entered into force, some adaptations would be needed (notification and reporting by the shipowners instead of the ship recycling facility[77] and obligation to have a contract between the shipowner and the ship recycling facility[78]). When the Hong Kong Convention will enter into force, these provisions will not be necessary anymore. The proposed Regulation will therefore include an invitation for the Commission to review the implementation of the Regulation and present a proposal for revision if appropriate when the conditions of the entry into force of the Hong Kong Convention are met (the Convention will effectively become applicable two years after this date).

The Hong Kong Convention allows its Parties to take more stringent measures in order to protect human health and the environment. It is therefore proposed to complement the criteria included in the Hong Kong Convention for defining safe and sound recycling facilities in order to address the issues which are insufficiently addressed by the Hong Kong Convention as explained in section 3.5 (ensuring a proper containment of all hazardous waste and well as their proper management in the recycling facilities and in downstream facilities). While it is difficult to expect the current "beaching" facilities to be able to meet these requirements, it is not excluded that upgraded facilities might be able fulfill these criteria the future. These requirements would continue to be applied even after the entry into force of the Hong Kong Convention. To increase transparency, a list of ship recycling facilities meeting the Regulation's requirements would be established. It would contain facilities located in the EU designated by the Member States as well as facilities located in third countries. The latter would apply for inclusion in the list by presenting evidence that they comply with the Regulation's requirements.

Sanctions, which would be more adapted to ship recycling will be introduced in order to ensure compliance with the legislation. In order to avoid confusion, overlaps and administrative burden, ships covered by this new legislation would not be covered anymore by the EU Waste Shipment Regulation. The Hong Kong Convention is expected to enter into force at international level in 2020.

4.5. Option E: covering ship dismantling by specific rules implementing and going beyond the Hong Kong Convention:

This option consists of option D plus the following elements:

(1) Option E1: addressing also government vessels,including navy vessels, in the new legislation instrument transposing the Hong Kong Convention.

As the option B, this option was announced in the Communication proposing an EU strategy on ship dismantling.

Including these ships under the scope of the specific Regulation transposing the Hong Kong Convention will imply that these ships would be allowed to be dismantled in facilities compliant with the Hong Kong Convention worldwide. The volume of these ships dismantled in the EU and in the OECD is therefore expected to decrease significantly. It is however not expected to see all these ships being dismantled outside the OECD notably for navy ships in order to protect certain sensitive technologies.

Not all requirements of the Hong Kong Convention would be applicable to navy ships since they benefit from specific immunities (no port state control' inspection of their inventory of hazardous materials could, for example, be foreseen).

Like for option D, the Hong Kong Convention is expected to enter into force in 2020. By this date, it is expected that all substandard facilities could be upgraded so as to meet the Convention's requirements.

(2) Option E2: requesting EU flagged ships to be treated in facilities which are providing a level of protection of health and of the environment equivalent to EU facilities[79].

This option would consist in strengthening the option D by requiring that all ship dismantling facilities should fulfil criteria which would imply that they have impacts on human health and on the environment comparable to the European ones. Ships would be allowed to be dismantled only in the EU, in China and in Turkey (investments would be required in China and Turkey so as to reach EU standards by 2015). These requirements would continue to be applied even after the entry into force of the Hong Kong Convention which is expected to take place in 2020 similarly to option D.

This option is compatible with the Hong Kong Convention which allows its Parties to take more stringent measures in order to prevent, reduce or minimize any adverse effects on human health and on the environment.

(3) Option E3: allowing the export of EU-flagged ships only to a list of third party audited facilities.

The rational for introducing this option, would be to address the governance problems faced in certain ship recycling countries by involving third parties in the verification of the facilities. This would respond to one of the possible weaknesses of the Hong Kong Convention presented in section 3.5.

This option is compatible with the Hong Kong Convention which allows its Parties to take more stringent measures in order to prevent, reduce or minimize any adverse effects on human health and on the environment.

This requirement for a third party audit of facilities would continue to be applied even after the entry into force of the Hong Kong Convention which is expected to take place in 2020 similarly to option D.

5. Analysis of impacts

This section provides the qualitative and quantitative assessment of the impacts of the options over the short (2015), medium (2020) and long term (2025).

5.1. Assumptions and methodology used for the quantitative assessment

The quantitative analysis provided in this Impact Assessment is based on the best available data and information collected by the Commission from stakeholders, Member States and the literature. However, data remains incomplete regarding some aspects and in particular for health and safety impacts in third countries which are either not reported or underreported.

The methodology used to estimate the environmental, social and economic impacts is based on the volume of EU flagged ships going for dismantling and on the impacts of the methods used in the different dismantling countries (beaching, landing, afloat and docking).

The volume of EU-flagged ships to be dismantled yearly up to 2030 has been estimated based on the age profile of the existing fleet and the life expectancy of the current fleet. The life expectancy has been updated in order to reflect the changes implied by the shipping crisis since 2008. This approach allows for comparison between different options by reflecting the overall trend in volumes. It will however not reflect e.g. the true ups and downs of the dismantling market business cycle that comes from fluctuating freight rates.

Each recycling method is associated with a certain level of quality in terms of safety and of protection of health and the environment. A specific set of data has therefore been developed in order to be able to quantify the impacts of ship dismantling based on the volume of ship dismantled in a given recycling country and depending to the recycling method. Data are based on pilot projets (ship's composition of hazardous and non hazardous waste), on ratios (CO2 emissions, value of statistical life indicated in the IA guidelines), on experts estimates (amount of hazardous waste treated in an environmentally sound manner, administrative costs for shipowners and authorities) and on theoretical benchmark based on EU statistics regarding accidents and incidents in facilities. Using the theoretically based accident data is necessary to take into account the underreporting practices in south Asian third countries. This is of course associated with a considerable uncertainty in terms of actual numbers, but is however expected acceptable for comparing the relative differences between the scenarios. More information about the data, the hypothesis and the methodology are provided in Annex V.

The environmental, social and economic impacts of the baseline scenario are developed in section 5.3. The quantitative impacts are summed up in Table 2. As recommended by the IA guidelines, the report will focus only on the additional impacts of the other options compared to the baseline scenario.

Table 2: Quantification of the additional impacts of the different scenarios compared to the baseline scenario in the short, medium and long term.

Impacts || Environmental || Social || Economic

Hazardous waste treated in an ESM manner[80] || Work load EU[81] || Workload (protected workers)81 || Workload (not protected workers) 81 || Workload (not protected children workers) 81 || Fatal accidents (adults)[82] || Non fatal accidents (adults)82 || Fatal accidents (children) 82 || Non fatal accidents (children) 82 || Social costs[83] || Revenues ships owners83 || Administrative costs (Member States) 83

Short term (2015) || B || 0% || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || -1 952 011 || 378 604

C || -6% || -5 || 189 || 468 || 159 || 1 || 184 || 0 || 29 || 969 792 || 12 540 267 || 0

D || 23% || 0 || 1 423 || -2 246 || -764 || -2 || -473 || -1 || -133 || -3 372 237 || -22 019 545 || 356 430

E2 || 30% || 0 || -938 || -2 385 || -811 || -4 || -1 105 || -1 || -148 || -5 401 791 || -66 349 943 || 356 430

E3 || 23% || 0 || 1 423 || -2 246 || -764 || -2 || -473 || -1 || -133 || -3 372 237 || -22 221 755 || 356 430

Medium term (2020) || B || 0% || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || -112 036 486 || 640 117

C || -20% || -6 || -2 497 || 3 244 || 1 103 || 1 103 || 3 || 633 || 1 || 5 993 494 || 31 192 613 || -436 341

D || 0% || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || -112 036 486 || 617 943

E2 || 16% || 0 || -3 778 || 0 || 0 || 0 || -2 || -833 || 0 || -2 820 429 || -189 916 941 || 617 943

E3 || 0% || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || -112 266 395 || 617 943

Long term (2025) || B || 0% || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 149 062 972 || 22 174

C || 0% || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 159 369 991 || -879 612

D || 0% || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 149 062 972 || 0

E2 || 16% || 0 || -3 428 || 0 || 0 || -2 || -756 || 0 || 0 || -3 114 124 || 63 072 738 || 0

E3 || 0% || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 148 854 325 || 0

5.2. The impact of options on where ships are dismantled

Options A and B consist in maintaining the current prohibition for EU flagged ships to be dismantled outside the OECD will imply that there will be a continuous gap between the need and the legally available recycling capacity for large commercial EU-flagged ships. Even responsible shipowners can therefore be expected either to not inform their flag state of their intention to dismantle their ships thus circumventing the Waste Shipment Regulation or to change their flag in favour of countries which are not Parties to the Hong Kong Convention. A larger proportion of ships could also be sold to "cash buyers". A large reflagging from EU to non-EU flag is to be expected if there is an attempt to strongly enforce the prohibition to dismantle ships outside the OECD. It is therefore expected that the current l