3. Options for improving european management of ... - ENDS Europe

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                                                                  SEC (2006)

                                                  GREEN PAPER

                                           on better ship dismantling



     The dismantling of ships is part of the underbelly of globalisation. At present it is sustainable
     from a narrow economic point of view, but the costs for human health and the environment
     are high. A radical change is needed as soon as possible.

         Each year between 200 and 600 sea-going ships of over 2 000 dead weight tons (dwt) are
          dismantled worldwide. A peak is expected in 2010 when around 800 single-hull tankers
          will have to be phased out.
         Nowadays two thirds or more of these ships are dismantled on beaches and river banks on
          the Indian sub-continent, with Bangladesh currently holding the largest share of the
         Between 2001 and 2003 14% of the ships that went for scrapping flew the flags of EU
          Member States and 18% the flags of states which acceded to the EU in 2004. At least 36%
          of world shipping tonnage in 2006 was owned by companies domiciled in the EU.
         Approximately 100 warships and other government vessels flying EU flags - most of them
          French and British - are expected to be decommissioned in the next 10 years. The naval
          vessels that were built between the 1960s and the early 1980s contain relatively high
          quantities of asbestos and other hazardous materials.
         From the ships scrapped between 2006 and 2015 an estimated 5.5 million tonnes of
          materials of potential environmental concern will end up in dismantling yards (in
          particular oil sludge, oils, paints, PVC and asbestos).
         None of the sites used for ship dismantling on the Indian sub-continent has containment to
          prevent pollution of soil and water, few have waste reception facilities, and the treatment
          of waste rarely conforms to even minimum environmental standards.
         Ship scrapping is an important source of raw materials in South Asia. Bangladesh derives
          80-90% of its steel from end-of-life ships. The prices paid for them by ship-breaking
          companies are now well in excess of $400 per light displacement ton (ldt) in Bangladesh
          and thus considerably higher than in other countries.
         Ship-breaking is a dangerous activity. According to a recent Indian report, one in six of
          the workers at Alang, India's largest dismantling site, is suffering from asbestosis. The
          fatal accident rate is said to be six times higher than in the Indian mining industry. In
          Bangladesh some 200 ship-breaking workers died in accidents between 1998 and 2003.
          NGOs estimate the total death toll from ship scrapping at several thousands, and this will
          increase considerably as more inexperienced labourers are recruited to deal with peak
          numbers of single-hull tankers in the coming years.
         At present there is "green" ship recycling capacity, i.e. conforming to environmental and
          safety standards, to handle at most 2 million ldt/year worldwide, which is around 30% of
          the predicted total scrapping demand in normal years. Most of these facilities -
          particularly in China, but also in some EU Member States - find it difficult to operate, as
          they cannot offer the same scrap prices and have much higher costs than their competitors
          in South Asia.

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     In principle, the transfer of end-of-life ships from industrial to developing countries is covered
     by international law on the shipment of waste, and the export from the EU of vessels
     containing hazardous materials is banned by the Community's Waste Shipment Regulation.
     However, in recent years several high-profile cases of European ships going for recycling to
     South Asia have shown the problems of implementing this legislation.

     These obvious deficiencies and the failure to provide for socially and environmentally
     sustainable ship dismantling have alerted the international public and created political
     momentum. The International Maritime Organisation - IMO - has started to work on an
     international convention for the safe and environmentally sound recycling of ships. Some
     maritime countries, such as the UK, are developing national strategies for government vessels
     and ships flying their flag. The European Parliament and non-governmental organisations
     have demanded action at EU level.

     In its conclusions of 20 November 2006 the Council of the EU acknowledged that
     environmentally sound management of ship dismantling is a priority for the European Union.
     It stated that recent events and forecasts of tonnages to be dismantled in the near future call
     for urgent and appropriate action from the international community, including the EU. The
     Council welcomed the Commission's intention to work towards an EU-wide strategy on ship
     dismantling. This strategy should strengthen the enforcement of existing Community law,
     recognising the specificity of the maritime world, developments taking place therein,
     particularly in international maritime legislation, and the final objective of reaching a globally
     sustainable solution. In this context, the Commission is invited to assess the need for building
     up sufficient ship dismantling capacity in the EU.

     The Commission already set out its position in the Green Paper on Maritime Policy of June
     2006.1 It proposed that a future EU maritime policy should support initiatives at international
     level to achieve binding minimum standards on ship recycling and promote the establishment
     of clean recycling facilities. However, the EU might also have to pursue a set of regional
     initiatives to account for the gaps in the forthcoming international regime and the possible
     delay until it becomes effective.

     This Green Paper attempts to come up with fresh ideas on ship dismantling, in order to
     continue and intensify the dialogue with Member States and stakeholders and prepare the
     ground for future action.

     2.        KEY ISSUES

         2.1   Legal situation: the ban on exports of hazardous waste
     In the late 1980s cases of toxic waste from industrialised countries sent to developing
     countries resulted in international outrage. Eight thousand drums of chemical waste dumped
     in Koko Beach, Nigeria, and ships like the Karin B sailing from port to port trying to offload
     their cargoes of hazardous waste made the newspaper headlines. A reinforced international
     legal framework was called for. The United Nation's Basel Convention was adopted on 22
     March 1989 to set up a framework for controlling the movement of hazardous wastes across
     international frontiers. To date 168 countries have signed the Convention and 165 have

               "Towards a future Maritime Policy for the Union: A European vision for the oceans and seas",
               COM(2006) 275 final, 7.6.2006, at p. 43.

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     ratified it. The European Community as a whole is a party to the Basel Convention, as are all
     the Member States.

     An absolute ban on exports of hazardous waste from OECD countries to non-OECD countries
     was adopted in 1995 as an amendment to the Basel Convention. The ban was introduced due
     to political concerns raised both by developing and developed countries regarding the
     increased amounts of hazardous waste being exported from developed countries to developing
     countries and then managed in an uncontrolled and risky manner.

     This "Basel ban" was incorporated into EU legislation in 1997 and is binding on all Member
     States (Articles 14 and 16 of the current Waste Shipment Regulation2). The EU is the most
     important global player to have implemented the ban in domestic legislation. The USA, for
     example, has not ratified the Basel Convention even in its un-amended form. Among the
     larger countries which are parties to the Convention, China, Indonesia, Egypt and Nigeria
     have accepted the ban amendment, while Australia, Brazil, Canada, India, Japan and Russia
     have not.

     In international waste shipment law it is recognized that a ship may become waste as defined
     in Article 2 of the Basel Convention and that at the same time it may be defined as a ship
     under other international rules.3 The definition of waste in Community law, according to
     which waste means any substance or object in the categories set out in Annex I to the Waste
     Framework Directive4 which the holder discards or intends or is required to discard, applies
     also to ships sent for dismantling. If a vessel contains considerable quantities of hazardous
     substances, or in the words of the relevant waste entry GC 030, has not been "properly
     emptied" of hazardous materials, it will be considered a hazardous waste. The export of such
     a vessel for scrapping from the EU to a non-OECD country is prohibited under the Basel ban
     and the Waste Shipment Regulation, and any dismantling must take place under
     environmentally sound conditions in an OECD country. The alternative is to have the ship
     decontaminated (pre-cleaned) in such a way that the ship no longer constitutes a hazardous
     waste. This legal interpretation was confirmed by the French Conseil d'Etat in the case of the
     former aircraft carrier Clemenceau.5

     The obligations for the EU Member States under conventions of the International Maritime
     Organisation (IMO) do not invalidate these waste shipment rules, even though a ship should
     not be stopped or undergo "undue delay" if it has valid IMO certificates. The Basel
     Convention and the export ban on hazardous waste, as implemented at EU level through the
     Waste Shipment Regulation, are binding and need to be enforced in the Member States. Both
     systems of rules are compatible, since both the Law of the Sea and IMO conventions also
     provide for the rights (and duties) of coastal states to enforce other applicable rules of
     international law with regard to environmental protection.

            Council Regulation (EEC) No 259/93 of 1 February 1993 on the supervision and control of shipments
            of waste within, into and out of the European Community, OJ L 30, 6.2.1993, p. 1, as amended.
            Basel Convention Decision VII/26, recital 6; Regulation (EC) No 1013/2006 of the European
            Parliament and of the Council of 14 June 2006 on shipments of waste, OJ L 190, 12.7.2006, p. 1 (recital
            Directive 2006/12/EC of the European Parliament and of the Council of 5 April 2006 on waste, OJ L
            114, 27.4.2006, p. 9.
            Decision of 15 February 2006, No 288801-288811, see:

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     In practice, the notification requirements of the Basel Convention, which are binding on all its
     parties, are rarely complied with in the case of end-of-life ships. It is difficult to enforce the
     export ban under the EU Waste Shipment Regulation if a ship has left European waters and
     the owner then decides to send it for dismantling in other parts of the world. Specific legally
     binding international rules on ship recycling are proposed in the draft Convention that is
     currently being discussed in the IMO, but do not exist at present.

         2.2 The economics of ship dismantling
     Currently the ship dismantling market functions as follows. Ship-owners who have decided to
     end the economic life of a vessel will look for a cash buyer. This basically happens when the
     maintenance costs of the vessel start to exceed possible revenue, or when the vessel has
     become unattractive for the second-hand market, i.e. it is unlikely that it can be sold on. The
     cash buyer will either be a dedicated broker or the scrap yard operator himself. Typically, the
     ship will take cargo for a final voyage to the area where the scrap yard is located. After
     completion of this voyage, the ship will be brought, under its own power, to the scrap yard
     where it will be dismantled.

     The cash buyer pays a price in USD per light displacement ton (ldt), which is roughly
     equivalent to the steel weight of the ship. For years the price has been around 150 USD/ldt
     (with lows around 100 USD/ldt and highs around 200 USD/ldt), but recently the strong
     demand for steel scrap in China and the low supply of ships have driven prices up to record
     levels of nearly 500 USD/ldt for average vessels and more for particularly valuable ones. The
     highest prices are currently paid in Bangladesh.

     A very large crude oil tanker (VLCC) with a cargo carrying capacity of 300 000 tonnes or so
     will be around 45,000 ldt so can fetch 5 to 10 million USD (or even much more), depending
     on market conditions. These figures are just rough indications as the price is also affected by
     other factors like the amount and quality of the steel, the presence of metals such as copper or
     nickel, and the equipment that can still be sold. Whether or not there are problematic
     substances on board do not seem to affect the price.

     The Commission looked into the economics of ship scrapping in a 2000 study.6 The study
     concluded that under current conditions it would be extremely difficult to make ship recycling
     economically viable while at the same time respecting sound environmental standards for
     various reasons.

             The number of ships available for scrapping depends on conditions on the freight
              market. If ships can still earn good money, owners will not decide to send the ship for
              scrapping. In the past two years, scrapping volumes were very low due to a booming
              and profitable freight market. The large majority of ships for scrapping will have to
              come from the deep sea merchant fleet and will be mainly tankers and bulk carriers
              (which are the "volume" segments). Other market segments, such as warships, inland
              waterways vessels and offshore structures, are of limited size and availability and so
              can hardly provide a steady stream of material for large-scale recycling. The operator

              Det Norske Veritas / Appledore International, Technological and Economic Feasibility Study of Ship
              Scrapping       in     Europe.       Final    Report     (No       2000-3527),     13.2.2001,     see:

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             of a modern recycling facility will therefore have difficulty building a business model
             that fully covers its amortisation costs. This is why the remaining operators in Europe
             were able to survive only by concentrating on niche markets, in particular offshore
             structures, fishing boats and inland waterway vessels.7

            Ships are individual constructions with a long life-cycle and will have undergone
             many repairs and maintenance in their 20-30 years of operation. Very little of this will
             be properly documented. The recycling facility therefore does not know what it is
             taking on and what recycling work will be required. This is particularly true for
             passenger ships which contain a wide range of materials, including composites which
             are very difficult to separate and recycle. The ships currently heading for the scrap
             yards were built in the 1970s using materials that are no longer used today (e.g.
             asbestos). Consequently, the amount of manual labour required is significant and
             likely to remain a major cost factor. The use of heavy machinery for these types of
             vessels will be limited.

            Some materials on board can be recycled and will create revenue. Others need
             expensive treatment, for which costs are significant but difficult to calculate in

            The main revenue streams for scrap yards in Asia are steel which is used in building,
             and the second-hand market in ships' equipment. These revenue streams basically do
             not exist in developed countries due to regulatory requirements.

     Another factor is the difference in labour costs between Asia and Europe. While labourers on
     demolition sites in Bangladesh and India earn 1-2 USD/day and employers' expenses for
     safety and health are negligible, the costs in Europe can be estimated at around 250 USD/day
     for a worker in the Netherlands and 13 USD/day in Bulgaria.8

     These differences in labour costs, environmental and health requirements and revenue from
     recycling and second-hand materials explain why operators in South Asia can offer far better
     prices to ship-owners than their potential competitors in other countries. In Bangladesh
     breakers who have no environmental or health and safety costs currently pay 450-500 USD/t
     for a ship, while Chinese facilities with slightly better standards offer half this price and US
     operators a tenth. Indeed, in the days before the boom in steel prices recycling yards in
     industrial countries even used to charge for the dismantling of naval vessels.

     As a consequence of market developments, the dismantling capacity in the EU has been
     reduced in the last 20 years to a level which can handle only small ships, government vessels
     and a minor part of the merchant fleet. Nowadays there are facilities mainly in Belgium,
     Italy, and the Netherlands (with a combined capacity of about 230,000 ldt/year) - plus soon in
     the UK - and there are smaller facilities for fishing vessels in a number of other Member
     States. This does not include the many disused dry docks in ports all over Europe, which
     would be technically suitable for dismantling, but are not likely to be reopened under current
     economic conditions. Turkey alone possesses a sizeable dismantling capacity of about

             See table of European dismantling facilities in the Annex.
             Calculated on the basis of hourly labour costs (NL: 24 €/h, BG: 1.2 €/h) in: Eurostat, Labour Costs
             Survey 2000, Statistics in focus - Theme 3 - 18/2003. For Bangladesh see: YPSA, Workers in
             shipbreaking industries, A baseline survey of Chittagong (Bangladesh), 2005.

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     1 million tons on the shore of Aliaga (near Izmir), which is today largely unused. The EU
     facilities in general meet high standards of occupational safety and environmental protection.
     Their Turkish counterparts have made considerable advances in environmental and safety
     management over the last years, even though there are still some environmental concerns.

     This problem of insufficient capacity will be aggravated by the forthcoming phasing-out of all
     single-hull oil tankers. Accidents involving tankers like the Erika and the Prestige have
     caused major environmental disasters in recent decades. In reaction to this, EU legislation and
     international rules were adopted for the gradual phasing-out of single-hull tankers and will
     begin to have maximum effect in the next decade. It is estimated that about 1,300 single-hull
     tankers will be decommissioned and go for scrapping by the year 2015, about a third of them
     under the flags of Member States.9 The demand for ship recycling capacity is expected to
     peak around the year 2010, the main phasing-out date for these tankers. However, there will
     also be increases in the longer term, due to the general boom in shipbuilding over the last

     For the moment the ship scrapping market is still economically viable, leaving aside the
     extreme externalisation of costs. Owners have significant income from selling
     decommissioned ships (the Very Large Crude Carrier – VLCC - given above as an example
     would today cost some 90 million USD to build new, and would fetch 10 million USD or
     more after 25 years of use). Scrap yards make profits from recycling the materials recovered.
     But the market only functions under highly problematic conditions that will be described
     below. This is less and less acceptable for the public in the developed countries where most
     ship-owners live and where the financial returns from the ship's operations are collected, and
     it is not compatible with principles of environmental and social sustainability.

          2.3 Environmental and social impacts
     Most vessels contain large amounts of hazardous materials, such as asbestos (in particular if
     built before the 1980s), oils and oil sludge, PCBs (polychlorinated biphenyls), and heavy
     metals in paints and equipment. So when sent for dismantling, these ships, represent one of
     the major streams of hazardous waste from industrialised countries to the developing world.
     In 2004 a study for the Commission (DG TREN) estimated that oil sludge from end-of-life
     ships alone will total between 400 000 and 1.3 million tonnes per year until 2015. Of the
     hazardous waste in dismantling facilities every year, asbestos will amount to 1 000-3 000
     tonnes, TBT 170-540 tonnes and environmentally harmful paints 6 000-20 000 tonnes.10

     The scrapping of ships in Bangladesh, India and Pakistan takes place on sandy beaches
     without any containment or barriers to prevent water and soil pollution. There do not seem to
     be any reception facilities for hazardous waste, and materials that cannot be recycled are
     usually dumped on the spot. PVC coatings of cables are often burnt in open fires.

              Presentation Stuer-Lauridsen at EMSA ship recycling workshop (Sept. 2006). 32% of all vessels
              scrapped in 2001-03 flew the flags of EU Member States or the states that acceded in 2004. At least
              36% of the tonnage of seagoing vessels above 1,000 gross tons registered on 1 January 2006 were
              owned by companies domiciled in the EU; calculated from data of UNCTAD, Review of Maritime
              Transport 2006, p. 33.
              COWI / EC-DG TREN, Oil Tanker Phase Out and the Ship Scrapping Industry, 2004, at p. 137. The
              study is accessible via:

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     The impact of these practices on the environment has rarely been studied in detail. Available
     data suggest that the physico-chemical properties of sea water, beach soil and sediments are
     considerably affected by shipbreaking.11 Oil pollution of the beaches and the adjoining sea is
     clearly visible on aerial photographs of the dismantling sites at Alang (India) and Chittagong
     (Bangladesh), and NGOs report that vegetation and fish have disappeared from these areas.

     Safety and health conditions in the South Asian scrap yards are critical. There is a high risk of
     dangerous accidents, particularly because of the lack of heavy machinery (cranes) and safety
     equipment for workers. According to a 2004 government report in India, there were 434
     incidents at the Alang yards between 1996 and 2003, killing 209 labourers. In Bangladesh,
     according to media reports, more than 400 workers have been killed and 6 000 seriously
     injured over the last 20 years.12 The fact that Bangladesh, unlike India, does not even require
     "gas-free-for-hot-work" certification accounts for the particularly low costs there, but also for
     the high frequency of lethal explosions at the dismantling yards.

     In addition, it is estimated that thousands contract irreversible disease from handling and
     inhaling toxic substances without minimum precautions or protection. According to a medical
     report to the Indian Supreme Court in September 2006, 16% of the workforce handling
     asbestos in Alang were found to be suffering from asbestosis and thus at serious risk of
     contracting lung cancer. 13

     In 2005 there were an estimated 25 000 scrapyard workers in Bangladesh. Most come from
     the poorest regions of the country and are usually unskilled. They work without contracts and
     health or accident insurance and are not allowed to form trade unions. There is little or no
     compensation for accidents. Some degree of child labour for the lighter work is common.

     The conditions in shipbreaking facilities have been criticised by environmental and human
     rights organisations and the media, and by India's Supreme Court. However, the governments
     of the South Asian states seem reluctant to enforce a change in practices as they regard ship
     dismantling as an economically important activity which should be impeded as little as

          2.4 International state of play
     The problem of ship dismantling has been discussed for many years, both within the EU and
     within the international organisations involved: the International Maritime Organisation
     (IMO), the International Labour Organisation (ILO) and the Basel Convention (or more
     precisely its parent body, the United Nations Environment Programme, UNEP). All three
     organisations have developed non-binding technical guidelines for ship recycling.14 At two
     meetings in 2005, a Joint ILO/IMO/Basel Convention Working Group on Ship Scrapping

               M. Hossain / M.M. Islam, Ship Breaking Activities and its Impact on the Coastal Zone of Chittagong,
               Bangladesh, 2006.
               YPSA, Workers in shipbreaking industries: A base line survey of Chittagong (Bangladesh), 2005, p. 15
               et seq.
               Lloyd's List of 8.9.2006.
               Basel Convention: Technical guidelines for the environmentally sound management of the full and
               partial dismantling of ships (adopted December 2002); ILO: Safety and health in shipbreaking.
               Guidelines for Asian countries and Turkey (October 2003); IMO guidelines on ship recycling
               (December 2003).

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     discussed a co-ordinated approach to the issue in order to avoid duplication of work and
     overlapping of roles, responsibilities and competencies between the three organizations.

     Since 2005, the IMO has been working towards a binding international regime for clean ship
     dismantling. The EU Member States and the Commission take part in this work. A draft
     Convention on the Safe and Environmentally Sound Recycling of Ships is being negotiated in
     the organisation's Marine Environment Protection Committee (MEPC) for adoption by a
     diplomatic conference in 2008/2009, to enter into force some years later. The draft has an
     annex containing regulations on requirements for ships (including design, construction,
     operation and maintenance) and for ship recycling facilities, and some reporting requirements.
     It aims at a "cradle to grave" approach to ship recycling, with a view to avoiding hazardous
     materials in new ships and removing them from existing ships during their period of
     operation. Technical details, which also cover the environmentally sound management of ship
     recycling facilities, are supposed to be set out in recommended guidelines supplementing the

     According to the current draft, the Convention - in line with other IMO instruments - will not
     apply to smaller vessels of less than 400 or 500 gross tons, nor to warships, naval auxiliary or
     other vessels which are state-owned or -operated and used only on non-commercial
     government service. Controversial issues, which will be discussed by IMO working groups in
     2007, include the question as to whether reference should be made to rules and standards
     outside the framework of IMO, the environmental baseline standard for ship recycling
     facilities, future reporting requirements (in particular whether state-to-state notification should
     be necessary as under the Basel Convention) and the type of compliance mechanism to help
     with implementation of the Convention.

     In the context of the Basel Convention, the key issue under discussion is whether the
     proposed Ship Recycling Convention will ensure an equivalent level of control and
     enforcement as under the Basel Convention. The 8th Conference of the Parties on 1 December
     2006 reiterated this demand and stated, among other things, that the future legal instrument
     should generate conditions of ship dismantling that protect workers and the environment from
     the adverse impacts of hazardous wastes and unsafe working practices.


     The Commission has examined the wide variety of issues involved and identified some
     options for closing the implementation gap and improving the management of ship
     dismantling. These options should not be seen as mutually exclusive, but as supplementing
     and supporting each other.

       3.1 Better enforcement of EU waste shipment law
     The EU Member States are under an obligation to apply and enforce the EC Waste Shipment
     Regulation, including the "Basel ban" on hazardous waste exports.
     Even though the mobility of ships makes it relatively easy to circumvent the export ban,
     enforcement could be improved, at least in the case of vessels and shipping lines which
     regularly operate in European waters. This will require:
             more controls in European ports, targeting ships that are above a certain age (25
              years) or where other indications make it likely that they are intended for dismantling;

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            possibly additional guidance by the Commission and the Member States on the
             definition of waste and hazardous waste in relation to ships, and a list of recycling
             facilities that meet standards of environmentally sound management;
            more systematic co-operation and information exchange between the Member States,
             and between them and the Commission, including the use of databases and press
             reports to identify potential end-of-life ships and follow their route to dismantling
            more cooperation with certain third countries, in particular recycling states and transit
             states (e.g. Egypt in relation to end-of-life ships that pass through the Suez Canal);
            giving priority to warships and other state-owned ships and commercial vessels that
             regularly operate in EU waters (e.g. ferries).
     As the Waste Shipment Regulation does not apply only to EU-flagged ships, but to all waste
     exports, and thus end-of-life ships that leave EU ports, ship-owners are not able to escape
     controls by re-flagging to non-European flags. The risk that shipping activity in Europe might
     be reduced by tighter enforcement is not very high as long as the EU remains an economically
     attractive and profitable market. More realistic is the risk that irresponsible non-European
     ship-owners affected by controls might abandon their vessels in EU ports, so that eventually
     proper disposal has to be paid for by the taxpayer. This kind of problem can only be addressed
     by more efficient enforcement of maritime rules in general.

      3.2 International solutions
     Within the international bodies involved, there seems to be general agreement that the most
     important issue is to ensure that ships are recycled in an environmentally sound and safe way.
     In order to create a level playing-field worldwide, binding international standards are
     necessary. Such standards should generate a real change in current dismantling practices by
     stopping the frequent pollution of soil and water, and by protecting workers from accidents
     and contamination. For instance, safe containment of oil residue spills, the prior removal of
     asbestos with protective equipment, gas-freeing precautions to prevent explosions, and
     machinery to carry heavy loads safely should all be made mandatory.

     There will still probably be a price difference between European and Asian countries, even if
     the latter meet high environmental and health standards, but it is less likely to prove
     prohibitive in all cases. For the foreseeable future, developing countries will be able to offer
     lower labour costs and higher prices for steel and reusable equipment. Still, there would be
     greater scope for the price gap to be bridged by voluntary measures that allow a certain
     amount of ship dismantling to take place in Europe where there is a specially high "zero
     pollution" standard.

     The future IMO Convention will be essential for solving the ship dismantling problem
     globally. Because it will have repercussions on the Waste Shipment Regulation and other EU
     law on environmental protection and safety at work, the Community as a whole needs to
     pursue the objective of becoming a party to the Convention, independent of membership of
     the IMO. This can be done by including in the Convention a clause on regional economic
     integration organisations ("REIO clause"), as is the case in all recent multilateral
     environmental agreements. In order to achieve environmentally sound international standards
     as soon as possible, there is a need to reinforce the role of the Community in the IMO.

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     It is in the interests of the EU, firstly, that the work of the IMO be concluded as swiftly as
     possible, and, secondly, that the Convention be sufficiently broad in scope and generate sound
     standards for environmental management, and the mechanisms necessary for their
     enforcement. The IMO system has to be made effective in the sense of creating a system
     under which ships can only be dismantled in an environmentally sound and safe way.

     It is unlikely that the forthcoming IMO instrument will include an obligation to
     decontaminate a ship prior to its final voyage, since pre-cleaning is widely seen as
     impracticable or uneconomic. However, since the Waste Shipment Regulation requires
     vessels to be "properly emptied" of hazardous materials in order to be classified as non-
     hazardous waste, the Commission will be studying the risks, costs and benefits of pre-
     cleaning. The results should be ready by spring 2007.

     To change the EC Waste Shipment Regulation or other Community law affected by the
     proposed Convention is currently not an option. This EU legislation should and will remain in
     force and there are no plans for changes until international rules under the IMO achieve the
     same high standard. In particular, there is no reason to modify the Basel Convention system
     for controlling transboundary waste shipments and to grant exemptions for end-of-life ships
     unless and until a new international regime guarantees an equivalent level of control for them.

     However, in order to enhance Community involvement in the IMO negotiations on an
     international Ship Recycling Convention, it is necessary:

     (a) to establish a Community position for the further negotiation of the IMO Convention,
     because of the Community legislation that might be affected; the fact that the Community has
     no legal status at the IMO does not stop the Council taking a decision on a Community
     position for negotiations;

     (b) to have a "REIO clause" inserted in order for the Community to become a party to the
     Ship Recycling Convention;

     (c) to intensify the co-ordination of positions in the negotiations between the EU Member
     States and the Commission; co-operation is already good but further reinforcement is needed.

     The Ship Recycling Convention may come too late to solve the problem of phased-out single
     hull tankers, as IMO conventions take on average six years to enter into force, and the peak
     for phasing out is expected around 2010. So while it is necessary to push for the earliest
     possible entry into force of the Convention, solutions have to be found for the interim period.

     3.3    Strengthening EU ship dismantling capacity
     The capacity for ship dismantling in Europe - if Turkey is included - is sufficient for all the
     warships and other state-owned vessels (about 100 of more than 1 000 ldt, with a combined
     tonnage of up to 500 000 ldt15) that will be decommissioned over the next 10 years, but not
     for the much higher number of oil tankers and other large merchant ships under EU flags.

            Estimate, based on information from European navies and research by the French inter-ministerial
            mission on ship dismantling.

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     This situation will not change significantly even after several shipyards in the UK that have
     applied for the necessary licences become operational in the near future.16

     The problem of insufficient dismantling capacity for European ships is to a large extent an
     economic one, since current market conditions make it impossible for EU operators to
     compete with Asian recycling facilities. As long as there is no level playing-field in the form
     of effective and environmentally sound mandatory standards for ship dismantling worldwide,
     European facilities will have difficulty competing in the market and ship-owners will continue
     to send their vessels to Asian sites.

     This market situation, characterised by excessive externalisation of costs and an absence of
     regulatory remedies for the unsafe and environmentally unsound conditions of ship
     dismantling in South Asia, may justify a certain degree of public funding in the interim
     period, until acceptable minimum standards have been established worldwide. Public funding
     could help to change current practices. It could include support from EU structural funds for
     innovative "green" recycling facilities in Europe, provided this support is given according to
     the objectives, rules and procedures applicable to these funds. State aid by Member States
     could be allowed for innovation projects or for non-profitable services of public interest (e.g.
     decontamination); this would, however, require amendments to the EU guidelines for
     environmental state aid, which currently do not include ship dismantling or pre-cleaning as
     eligible activities.

     At the same time, the "polluter pays" principle should be respected and the EU should avoid
     building up capacity that might not be economically sustainable even after the introduction of
     binding international minimum standards. For government vessels, additional structural
     funding or state aid are not necessary anyway, if governments follow strict public
     procurement rules that allow dismantling of state vessels only in accordance with current
     waste shipment law and high standards of environmentally sound management. The viability
     of dismantling facilities in Europe could be promoted already by more transparency in the
     decommissioning of state-owned ships, a coordinated time-schedule, and EU-wide
     harmonisation of the quality standards required by governments in dismantling contracts.

     More generally, and in relation to the much larger merchant fleet, the objective in the longer
     term should be to establish a sustainable funding system whereby ship-owners and possibly
     other beneficiaries of shipping contribute to the safe and environmentally sound dismantling
     of ships worldwide.

     In order to improve the present situation quickly, there is a need to ensure at least a minimum
     "green" capacity for the dismantling of all state-owned vessels and perhaps others in the EU.
     Such high-quality facilities could also serve as a benchmark for non-European operators.

     There is also strong political will in the EU for establishing EU ship dismantling capacity.
     According to the Council statement of 17 May 2006, Member States will use their best
     endeavours to increase capacity in the EU, and do their utmost to ensure that good progress is
     made in the international negotiations to establish mandatory requirements at the global level
     on ship dismantling.

            See also Annex. The Commission launched a study in September 2006 which will also assess the
            demand for ship dismantling and the existing and prospective capacity. A final report is expected for
            spring 2007.

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     3.4    Technical assistance to recycling states
     In spite of poor and dangerous working conditions and the degradation of the local
     environment, ship-breaking yards are economically important for South Asian countries. For
     instance, Bangladesh probably derives about 90% of its steel supply from ship dismantling,
     and the industry provides jobs for tens of thousands of workers.
     In order to encourage an upgrading of facilities in these countries, it will be necessary to
     provide technical assistance. On a small scale this is already done by international
     organisations, some OECD countries, and also the Commission This technical and financial
     aid should be expanded in close collaboration with the affected countries and other
     international donors, and existing aid instruments reviewed and earmarked for the purpose of
     safe and environmentally sound ship dismantling.
     Beyond the technical level, however, it is necessary to acknowledge that the absence or non-
     implementation of elementary rules on safety at work and environmental protection is
     strongly linked with structural poverty and other social and legal problems in some areas of
     South Asia, such as the lack of property rights and the frequency of extremely short leases for
     operators on coastal land, the weakness of enforcement authorities, and the existence of bad
     governance practices. In order to achieve sustainable change, assistance will have to be
     embedded in a wider framework.

     3.5    Encouraging Corporate Social Responsibility
     Merchant ships generate large profits for their owners over a relatively long operating life.
     When a ship becomes waste at the end of this life, the owner, as the person who has also
     typically taken the decision to send the ship for scrapping and is thus "producer" of the waste,
     has a responsibility to ensure that its disposal or recovery takes place in a safe and
     environmentally sound way. Ship-owners who take the principle of Corporate Social
     Responsibility seriously cannot tolerate the current dismantling practices, which endanger the
     life and health of workers and pollute the environment.

     Voluntary commitments by ship-owners, their associations and their customers are potentially
     the simplest and quickest way to change practices on the ground. The shipping company P&O
     Nedlloyd, for instance, (now part of the Maersk Group) has formed a partnership with
     Chinese facilities whose environmental and safety standards were upgraded through technical
     assistance and training. Intertanko, the organisation of independent tanker owners, announced
     in September 2006 the adoption of an "Interim Strategy", according to which ship-owners
     should only use recycling facilities that have made demonstrable advances in terms of the
     safety and environmental management in Section C of the draft IMO Convention.

     The Conference of the Parties of the Basel Convention, in a decision of 1 December 2006,
     called upon ship-owners and other stakeholders to take all practical steps to ensure that end-
     of-life ships are dismantled in an environmentally sound manner.

     Voluntary agreements often tend to be weak in implementation and substance if there is
     strong competition by non-parties and this is not balanced by positive and negative incentives.
     Compliance by an organisation and its members therefore cannot be taken for granted.
     Nevertheless, a commitment of this type is a useful first step to generate change. It should
     therefore be publicly encouraged and, where possible, supported with incentives from the
     European Union and the Member States, after which implementation will have to be

EN                                                                                           EN

     monitored. If it then turns out that the commitment is not followed up in practice, legislation
     may still be necessary.

     3.6    Other options
     Several other measures might be useful to assist the process of upgrading the ship dismantling
     industry in the short and medium term:
     (a) EU legislation, in particular on single-hull oil tankers. As these tankers will make up a
     major proportion of the end-of-life ships to be scrapped in the next few years, it might be
     worth considering action to supplement the existing maritime safety legislation (Erika I and
     Erika II package) with rules on the clean dismantling of the vessels.
     Some Member States have indicated that they would support such a proposal if the
     Commission took the initiative. The disadvantage of this legislation is that, since single-hull
     tankers are largely banned from EU ports anyway, it would be addressed mainly to EU flag
     states and could thus trigger off a wave of re-flagging, without producing benefits for safety
     and the environment.
     (b) Streamlining of shipping aids with a link to green ship dismantling. Community funding
     for the shipping industry under programmes such as "Marco Polo", and state aids for maritime
     transport, should be made dependent on the beneficiary's use of clean dismantling facilities
     for all ships under its control.

     (c) Awards for exemplary green recycling. Early action by ship-owners, recycling facilities
     and other stakeholders towards safe and pollution-free practices in ship dismantling could be
     encouraged by financial aid or tax benefits, or at least publicly recognised in the form of a a
     green label or award scheme. The already existing "Clean Marine" or "Green Awards" for
     shipping lines and ports could serve as an inspiration. In addition, a public register of clean
     facilities could give guidance to ship-owners.

     (d) Promoting international research on ship dismantling. Apart from the research that was
     and is undertaken by the Commission itself, scientific cooperation in partnership mode
     involving teams from Asia and Europe could be used to analyse the options and their
     implications in an integrated way that includes environmental, social, economic and
     institutional aspects. It would then be possible to propose courses of action which could be
     helpful to the different domestic players and in international negotiations. However, it would
     be several years before the results of this research became available.

     (e) A ship dismantling fund constituted from levies from the shipping industry to finance the
     clean recycling of all vessels. Especially in the longer term it will not be acceptable for
     investment in clean ship dismantling facilities in Europe or Asia to be subsidised out of public
     funds. "Polluter pays" and producer responsibility principles require that the owners take full
     responsibility for proper disposal. Such a sustainable funding system could be organised on a
     voluntary basis, with commitments particularly from the shipping industry, but in view of
     strong competition on the market it seems more effective to establish it as a mandatory
     element of the new international regime on ship dismantling. The IMO would be in the best
     position to operate this fund, similar to the existing oil pollution funds under the MARPOL
     To guard against re-flagging to states that do not join the fund system, contributions should be
     linked to registration at IMO or the operation of ships over their lifetime, e.g. through port
     fees or mandatory insurance schemes. This is also preferable to a deposit at the time a ship is

EN                                                                                           EN

     first built, since often the shipyard that built the ship will no longer exist when the vessel is
     finally scrapped. If an IMO-based fund is not achievable, one option might be a regional
     system of dismantling fees levied on ships that put into EU ports.

     4.    CONCLUSION

     This Green Paper gives the basic facts on ship dismantling and explains the problems. There
     are more details and data in the Annex. To give us a clearer view of the action required of the
     EU, we ask Member States, stakeholders and the public to consider the following questions.

          1. How can the enforcement of current Community law (Waste Shipment Regulation)
             affecting end-of-life ships be improved? What is the best mix of measures to divert
             EU-flagged or EU-owned vessels to dismantling sites with high environmental and
             safety standards?
          2. Would guidance on waste shipment rules and definitions on end-of-life ships help to
             improve implementation of rules and business practices, and what form should it take?
          3. What is the best way of steering the current negotiations on the IMO Ship Recycling
             Convention in order to improve ship dismantling practices globally?
          4. Should the EU aim at global environmental and safety standards under the IMO
             Convention that are comparable with EU standards?
          5. Should the EU become a party to the Ship Recycling Convention in order to achieve
             more ambitious and coherent environment and safety standards on ship dismantling?
          6. How can the EU best ensure that European ships are dismantled in a safe and
             environmentally sound way during the interim period before the IMO Convention
             becomes effective? What about ships owned by the public sector? Will national
             strategies and voluntary commitments by ship-owners be sufficient? What additional
             measures would be needed at EU level?
          7. Should the EU and its Member States take an active role in increasing the EU's own
             ship recycling capacity? Should state aids and EU funds be used to help increase
             capacity and how?
          8. What measures and actions should the EU take to encourage South Asian states to
             introduce and implement higher environmental and safety standards for ship
          9. What measures and actions should the EU take to encourage ship-owners to direct
             end-of-life ships to dismantling sites with high environmental and safety standards?
          10. How should the EU secure sustainable funding for clean ship dismantling in
              accordance with the polluter pays principle, and what measures and actions should it

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     Relevant EU legislation

     A broad range of EU legislation is applicable to end-of-life ships where it sets up binding
     environmental and safety requirements related to the dismantling activities themselves as well
     as the transfer of end-of-life ships for dismantling from and to the EU.

     In legal terms, Community legislation on environmental protection applies to the management
     of ships which have become waste. Directive 2006/12/EC on waste 17 (the Waste Framework
     Directive) sets out a number of requirements, including safeguards for environmental
     protection during recovery or disposal, planning and permitting requirements, record-keeping
     and periodic inspections. This directive also lays down the definition of ‘waste’ in its Article
     1(a) as “any substance or object in the categories set out in Annex I which the holder discards
     or intends or is required to discard”.

     The shipment of end-of-life vessels within the EU or between its Member States and third
     countries are currently regulated by Regulation (EEC) No 259/93 on the supervision and
     control of shipments of waste within, into and out of the European Community18 (the Waste
     Shipment Regulation). A new Regulation (EC) No 1013/2006 on shipments of waste was
     published in the Official Journal of 12 July 2006 (L 190 p. 1) and will replace the current
     regulation one year later.

     The United Nations’ Basel Convention19 establishes a control procedure for the export and
     import of hazardous waste between the parties to the convention. The procedure is based on
     prior notification of the export and import and written consent from the concerned authorities
     before the import or export takes place. The convention contains a list of hazardous wastes
     and a list of non-hazardous wastes. The parties to the convention may unilaterally designate
     other wastes as hazardous.

     In 1995, an amendment to the Basel Convention was adopted banning all exports of
     hazardous waste from OECD to non-OECD countries destined for recovery.20 The ban was
     adopted upon request of the developing countries (G-77) due to the high incidence of
     hazardous waste dumping. The ban was heavily opposed in particular by the US which is not
     a party to the convention, and also by Japan, Canada and Australia. The ban under the
     convention itself has not entered into force yet, as not sufficient parties have ratified it.

     The EU has unilaterally implemented the ban (Council Decision 97/640/EC) meaning that the
     exports of hazardous waste from the EU to non-OECD countries are banned.

     The Waste Shipment Regulation implements the Basel Convention and the Basel ban within
     the EU. Articles 14 and 16 of the regulation ban the export of hazardous waste to non-OECD
     countries. No exemptions are possible. Annex V to the regulation defines the wastes that fall
            Directive 2006/12/EC of the European Parliament and of the Council of 5 April 2006 on waste, OJ L
            114, 27.04.2006, p. 9.
            Regulation (EEC) No 259/93 of 1 February 1993 on the supervision and control of shipments of waste
            within, into and out of the European Community (OJ L 30, 6.02.1993, p. 1).
            The Basel Convention of 22 March 1989 on the control of transboundary movements of hazardous
            waste and their disposal. Approved by Council Decision 93/98/EEC of 1 February 1993.
            Decision III/1 of the Third Conference of the Parties.

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     under this export ban. End-of-life ships are not explicitly listed in Annex V. However, unless
     a ship has been built very recently it would in most cases contain hazardous substances listed
     in Annex V (e.g. asbestos under entries A 2050, 17 06 01 and 17 06 05 or PCBs under entries
     16 01 09, 16 02 09 and 16 02 10) and would therefore be covered by the export ban.

     The export and import of non-hazardous wastes are also covered by the Waste Shipment
     Regulation. This regulation allows as a main rule that the destination country outside the
     OECD determines whether it wants to accept or ban the import of waste.21

     At international level, non-hazardous wastes are covered by an OECD Decision22 and are not
     within the scope of the Basel Convention. Annex II to the EU Waste Shipment Regulation
     lists all "green" non-hazardous wastes and implements in this regard the OECD Decision.
     Pursuant to this Annex II, ships are considered non-hazardous if they fall under the entry GC
     030 ‘vessels and other floating structures for breaking up, properly emptied of any cargo and
     other materials arising from the operation of the vessel, which may have been classified as
     dangerous substance or waste’.

     What the term 'properly emptied' means is not precisely defined in the OECD Decision. The
     Commission is at the moment assessing how the OECD decision term 'properly emptied'
     should be interpreted both legally and technically.

     To sum up, the Community legislation on waste, in particular the Waste Shipment Regulation,
     sets the requirements at EU level for management and shipments of end-of-life vessels. The
     export from Member States to non-OECD countries of end-of-life vessels considered as
     hazardous waste is banned according to the United Nations’ Basel Convention. The ban is
     legally binding in the EU according to the Waste Shipment Regulation. Whether the vessel is
     considered as ‘hazardous waste’ depends on a number of factors: the holder’s intention to
     discard it, the vessel’s contents of hazardous substances, and whether it has been ‘properly
     emptied’ of such substances.

     Implementation of Community (EU) legislation

     The implementation of Community legislation is a task shared between the Commission and
     the Member States. The Commission shall ensure that the provisions of the EC Treaty and
     secondary legislation are properly applied (Article 211 of the EC Treaty). The Member States
     shall take all appropriate measures, whether general or particular, to ensure fulfilment of the
     obligations arising from the EC Treaty or resulting from action taken by the institutions of the
     Community. They shall facilitate the achievement of the Community’s tasks and abstain from
     any measure which could jeopardise the attainment of the objectives of the Treaty (Article 10
     of the EC Treaty).

            The Waste Shipment Regulation provides as introduction to Annex II that "regardless of whether or not
            wastes are included on this list, they may not be moved as green wastes if they are contaminated by
            other materials to an extent which (a) increases the risks associated with the waste sufficiently to render
            it appropriate for inclusion in the amber or red lists, or (b) prevents the recovery of the waste in an
            environmentally sound manner."
            Decision C(2001)107/Final of the OECD Council.

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     Data on ship dismantling - records and projections of scrapping volumes23

     The analysis of historical scrapping volumes is based on data from Clarkson Research.24 Data for
     2004 to 2006 were derived from the Clarksons Ship Register (July 2006), while data for the
     period 1994-2003 were taken from the COWI/TREN study, which was also based on data from
     Clarkson.25 The information covers a wide range of information on all merchant ships; including
     type of vessel, size of vessel, place of scrap, scrap price etc. The analysis of historical volumes
     includes vessels of 2,000 DWT and above.

     Historical volumes of ship demolition are estimated by number of vessels, dead weight tonnage
     (DWT) and light displacement tonnage (LDT). For some of the scrapped vessels, information is
     not available on LDT. For these vessels, LDT is estimated on the basis of a unit conversion factor
     based on the DWT of the ship. A unit conversion factor is estimated for each segment and size
     range. The details of this are presented in appendix 2.

     Historical volumes
     Total volumes
     The estimated level of historical scrappings are summarised in the figure below.

            Main data from COWI, Note on historical scrapping volumes, October 2006.

            Clarkson (2006): Breaking News. Feature by Mr. Martin Macleod.

            COWI/TREN (2004): Oil Tanker Phase Out and the Ship Scrapping Industry - study on the
            implications of the accelerated phase out scheme of single hull tankers proposed by the EU for the
            world ship scrapping and recycling industry. June 2004.

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     Figure 1                       Total historical ship scrapping volumes, all types (Million LDT, Million DWT
                                    and number of vessels)

                        35                                                                                                  700

                        30                                                                                                  600

                        25                                                                                                  500

                                                                                                                                  Number of vessels
      Million LDT/DWT

                        20                                                                                                  400

                        15                                                                                                  300

                        10                                                                                                  200

                         5                                                                                                  100

                         0                                                                                                  0
                             1994    1995   1996   1997   1998    1999   2000   2001   2002     2003   2004   2005   2006

                                                          mLDT            mDWT                No.

     Note: Figures for 2003 and 2006 have been converted to full year.

     From 1994-2006, approximately 5,600 ships have been demolished worldwide. There have been
     considerable variations in the level of activity over the years. The ship scrapping activity peaked
     in 1999 with 600 ships being scrapped representing approximately 6.4 million LDT, while the
     scrapping activity in 2005 reached an "all time low" of only approximately 1.5 million LDT being

     Volumes by ship type
     The historical scrapping volumes by ship type are shown in table below.

     The volumes scrapped declined considerable from 2003 to 2004 and 2005 for all major ship types
     due to historically strong freight markets. It appears - on the basis of data for the first half of 2006
     - that a rise in scrapping volumes corresponds to a relatively strong drop in freight rates.

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     Figure 2         Historical scrapping volumes by ship type (million LDT)





















                   Bulk carrier          Container                 Oil tanker          Other cargo vessel          Other

     Projections of the COWI/TREN study (2004)
     The COWI/TREN study included simple projections for the future scrapping activity for 2003-
     2015. The projections were based on a simple assessment of the age profile of the fleet (for all
     other vessel types than oil tanker) and the historically observed life time expectancy. For oil
     tankers the consequences of different phase-out schemes were assessed, i.e. the IMO MARPOL
     13G and EC 1726/2003/Revised MARPOL Annex 1.

     The projections did not consider the developments in the freight markets, as this is virtually
     impossible to forecast. Hence the forecasts of the COWI/TREN-study are to be considered as
     trend forecasts.

     The projections from the COWI/TREN study are shown in the table below.

     For the years 2004-2006 it was estimated that 7-10 million LDT would be scrapped per year,
     mainly consisting of bulk carrier, passenger/ro-ro/vehicle ferries, other cargo vessels and oil

EN                                                                                                                                EN

     Table 1                            Future volumes of demolition from COWI/TREN study, All types, Accelerated
                                        phase-out scheme for oil tankers (Million LDT)

                                                                                                               Non-cargo vessel
       Phase out year

                        Other tanker

                                                                                                 Other cargo
                                               Bulk carrier


                                                                                                                                  Oil tanker

      2004                             0.2       3.5           1.0        0.3       1.2             2.3                   0.2                  1.5       10.2
      2005                             0.2       3.2           1.0        0.3       1.0             1.9                   0.1                  0.1           7.8
      2006                             0.2       3.0           0.9        0.3       0.9             1.6                   0.1                  0.2           7.2
      2007                             0.2       2.9           0.9        0.3       0.8             1.4                   0.1                  0.3           6.9
      2008                             0.2       2.8           0.9        0.3       0.7             1.3                   0.1                  1.3           7.6
      2009                             0.2       2.7           0.9        0.3       0.7             1.1                   0.1                  1.1           7.1
      2010                             0.3       2.6           1.0        0.3       0.6             1.0                   0.1              11.0          16.9
      2011                             0.3       2.4           1.0        0.3       0.5             0.9                   0.1                  0.4           5.9
      2012                             0.4       2.3           1.0        0.2       0.4             0.8                   0.1                  0.3           5.5
      2013                             0.5       2.2           1.1        0.2       0.4             0.8                   0.1                  0.4           5.7
      2014                             0.6       2.1           1.2        0.2       0.4             0.7                   0.0                  0.4           5.6
      2015                             0.7       2.1           1.3        0.2       0.4             0.7                   0.0                  1.2           6.6
     Source: COWI/TREN study, pp. 82 and 84.

     The actual level of scrapping are much lower than the levels indicated in the table above. The
     main reason for this is as mentioned the strong freight markets, which the main driver for the
     ship-owners' decision when to scrap (as documented in the COWI/TREN study).

     Freight rates and decommissioning volumes
     The impressive freight rates are illustrated in the figure below. It can be seen that the
     container time charter rates more than tripled from early 2002 to early 2005 and the tanker
     segment has shown on equally impressive development.

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     Figure 3                                                Freight (time charter) rates
                                    180                                                                                                                                                                                                                                        70,000


          Container TC rate index


                                                                                                                                                                                                                                                                                        Tanker TC Rate ($)

                                    100                                                                                                                                                                                                                                        40,000

                                     80                                                                                                                                                                                                                                        30,000



                                      0                                                                                                                                                                                                                                        0
                                          Q1 - 1997

                                                      Q3 - 1997

                                                                  Q1 - 1998

                                                                              Q3 - 1998

                                                                                          Q1 - 1999

                                                                                                      Q3 - 1999

                                                                                                                  Q1 - 2000

                                                                                                                              Q3 - 2000

                                                                                                                                          Q1 - 2001

                                                                                                                                                       Q3 - 2001

                                                                                                                                                                   Q1 - 2002

                                                                                                                                                                               Q3 - 2002

                                                                                                                                                                                           Q1 - 2003

                                                                                                                                                                                                       Q3 - 2003

                                                                                                                                                                                                                   Q1 - 2004

                                                                                                                                                                                                                               Q3 - 2004

                                                                                                                                                                                                                                           Q1 - 2005

                                                                                                                                                                                                                                                       Q3 - 2005

                                                                                                                                                                                                                                                                   Q1 - 2006
                                                                                 Container TC rate index                                              1 year Tanker TC rate - 280,000 DWT

     Source: Container, Clarkson (2006), reading from graph; Tanker, Clarksons.net, reading from graph.

     Ship breaking nations
     The main driver for the ship-owner's decision where to scrap is the price offered by the ship-
     breakers. With the current practice used, ship breaking is a very labour-intensive industry. Labour
     costs therefore play a predominant role in determining where ships are scrapped and have been
     scrapped historically. This is reflected in the figure below which shows that the Indian sub-
     continent (India, Bangladesh, Pakistan) and China account for almost 90% of the ship breaking.
     This finding is generally in line with the findings of the COWI/TREN study.

     Most workers in Bangladesh yards get a wage of 80-120 taka per day. With an exchange rate of
     67 taka to the dollar, this makes a daily income of 1.20-1.80 $.26

                                          YPSA, Workers in shipbreaking industries: A base line survey of Chittagong (Bangladesh), 2005.

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     Figure 4       Total historical ship scrapping volumes, all types by region (share of LDT)

                        Rest of the World
                      Turkey                Unknown
                       1%                     8%

                            Vietnam                                     Bangladesh
                              1%                                           23%


                           China                                                     India

                                                                                     Indian Sub Cont

                Indian Sub Cont
                      2%                                                             Vietnam

                           8%                                                        Rest of the World



     There have been considerable variations market shares of the major shipbreaking nations over the
     years. The figure below shows that Bangladesh today accounts for the largest share, while only 5
     years back in time India was the world's largest shipbreaking nation.

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     Figure 5       Market share of main ship-breaking nations, 1994-2006







             1994   1995    1996       1997     1998        1999       2000       2001       2002      2003   2004   2005   2006

                               Bangladesh              India                  Pakistan              China

     European-flagged end-of-life ships

     Figure 6: Flag States of scrapped vessels, 2001-2003

                                           North America
                                                                   EU Member States

                         America                                                New EU Member
                           31%                                                      States

                                                                                EU accession
                                   FSU                                               3%
                                                                              Other Europe
                            Australia/NZ                                           3%
                                                                   Africa/Middle East
                             Asia/Indian Sub                              16%

     Source: COWI/TREN study (2004), p. 58, based on Clarkson fleet database.

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     Hazardous waste from end-of-life ships

     Table 2: Estimated future generation of materials of potential environmental concern from
     scrapping of ships, ton (densities used: H2SO4: 1.85 kg/l; paints: 1.4 kg/l; oils: 0.85 kg/l; oil
     sludge: 1.6 kg/l)

     materials, ton   2004     2005     2006     2007     2008     2009      2010     2011     2012     2013     2014     2015      Total

     Lead              0.11     0.08     0.08     0.07     0.08     0.08     0.18      0.06     0.06     0.06     0.06     0.07     0.99

     Cadmium           32.6     25.0     23.0     22.1     24.3     22.7     54.1      18.9     17.6     18.2     17.9     21.1      298

     Pb                38.1     29.1     26.9     25.8     28.4     26.5     63.1      22.0     20.5     21.3     20.9     24.6      347

     H2SO4             22.1     16.9     15.6     15.0     16.5     15.4     36.7      12.8     11.9     12.4     12.2     14.3      201

     Paints           12566    9610     8870     8501     9363     8747      20821    7269     6776     7022     6899     8131     114576

     TBT               326      250      230      221      243      227       541      189      176      182      179      211      2976

     R22/F12           245      187      173      166      182      170       406      142      132      137      134      158      2232

     Asbestos         1904     1456     1344     1288     1419     1325      3155     1101     1027     1064     1045     1232      17360

     PVC              2720     2080     1920     1840     2027     1893      4507     1573     1467     1520     1493     1760      24800

     PCB              0.004    0.003    0.003    0.003    0.003    0.003     0.006    0.002    0.002    0.002    0.002    0.002     0.03

     Hg               0.004    0.003    0.003    0.003    0.003    0.003     0.007    0.002    0.002    0.002    0.002    0.003     0.04

     Oils             85775    65593    60547    58024    63911    59706    142118    49615    46251    47933    47092    55502    782068

     Oil sludge       792064   605696   559104   535808   590165   551339   1312341   458155   427093   442624   434859   512512   7221760

     Source: COWI/TREN study, at p. 137, based on data of the Norwegian Ministry of Environment (1999) for a
           37,500 LDT vessel.

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     Environmentally sound ship recycling facilities
     Table 3: Identified facilities which have performed green recycling (2004)
     Country         Facility                                         Annual recycling capacity LDT

     Italy           Simont S.p.a. (Naples)                                       80,000
     Belgium         Van Heygen Recycling S.A. (Gent)                            120,000
     Holland         Scheepssloperij Nederland B.V.                               30,000
     China           China National Ship breaking
                     Corporation Jiangyin Changjiang                             300,000 *
                     Xiagang Ship breaking Company
     China           Shanghai Xinhua Iron & Steel Co.                            250,000 *
                     Locations of facilities:
                     San Francisco, California
                     Norfolk, Virginia
     USA             Baltimore, Maryland                                           N/A **
                     Brownsville, Texas
                     Chesapeake, Virginia
                     Port Everglade, Florida
     Total                                                                       780,000
     *:        The total capacity - has not been proven for green recycling
     **:       Eight yards have recycled ships for the US MARAD. There are indications that the yards are not open to foreign

     (Source: COWI/TREN study, at p. 112)

     To the facilities listed in 2004 may be added:
     - UK: Able UK (Hartlepool) and Harland & Wolf (Belfast) have applied for ship dismantling
           licences to expand activities on existing sites. The shipyard of Harland & Wolf
           possesses the largest dry docks in Europe which can take in ships of any size. After a
           lengthy planning procedure in the case of Able, positive decisions are expected for the
           near future.
     - Denmark: 3 facilities (Fornaes, Jatop, Smedegaarden in Grenaa and Frederikshavn) for
           fishing and naval vessels up to 150 m length.
     - Greece: 2 facilities (Bacopoulos and Savvas Pireus) for dismantling smaller ferries, fishing
            and naval vessels.
     - Lithuania: Undoris JSC (Klaipeda)
     - Poland: Gdansk shipyard. Several naval vessels, including the destroyer "Warszawa" were
            dismantled there in the last years.
            150 fishing vessels were recently scrapped in various locations along the Baltic coast (
            Gdańsk, Gdynia, Władysławowo, Kołobrzeg, Dziwnów).
     - Spain: Desguaces de la Arena (Soto del Barco). Dismantling of vessels up to 220 m length
             possible. Several other yards for smaller ships exist along the Northern coast of Spain.
     - Bulgaria: 2 facilities operate at Varna and Burgas.

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     - Turkey: The capacity of the demolition yards at Aliaga (near Izmir) is much higher than that
            in EU facilities and estimated at 1 million tons per year.
     - Norway: Aker-Kvaerner (Stord near Stavanger). Facility dismantles mainly oil-rigs with a
           capacity of 66.000 tons of steel per year and a high level of mechanisation.
     Most EU countries with a fishing fleet have yards that break obsolete fishing vessels. The
     yards are typically too small for standard oceangoing bulkers and tankers.

     (Sources: COWI, Ship Dismantling and Pre-Cleaning of Ships. Inception report, Nov. 2006; OECD Working Report no. 17,
               2003; Bertech, Presentation of "Shipmates" project, 2006; results of EMSA ship recycling workshop [Sept. 2006]
               and press reports)

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