What's Happening?
The global ship recycling industry is facing a regulatory impasse due to fragmented legal regimes and compliance gaps. South Asia, particularly Bangladesh and India, dominates the ship recycling market, accounting for nearly 80% of global activity. These
countries have made significant legal and technical reforms to align with international standards, such as the Hong Kong Convention. However, the EU Ship Recycling Regulation, which requires EU-flagged ships to be recycled in EU-approved facilities, excludes South Asian yards. This exclusion is not due to a lack of standards but rather a structural mismatch between EU requirements and the realities of South Asian ship recycling. The EU's list of approved facilities is concentrated in OECD states, which cannot match the capacity and cost-effectiveness of South Asian yards.
Why It's Important?
The regulatory gridlock has significant implications for the global shipping industry. With 30% of the world's merchant fleet owned by European companies, the inability to access South Asian recycling facilities creates operational challenges. The EU's stringent requirements, which exceed international conventions, limit the options for shipowners, potentially leading to increased costs and inefficiencies. South Asian facilities offer unique advantages, such as natural tidal variations and established industrial infrastructure, which are unmatched by OECD countries. The current legal framework risks concentrating environmental and labor risks in South Asia while regulatory credit is claimed elsewhere, highlighting a need for harmonization and recognition of South Asian compliance efforts.
What's Next?
To resolve the regulatory impasse, there is a call for the EU and OECD states to recognize South Asian facilities that meet OECD-level standards. This would involve creating a pathway for EU-standard certification of non-OECD facilities, allowing EU-flagged ships to be recycled in compliant South Asian yards. Such a policy shift would require long-term investment in upgrading these facilities to maintain compliance. The international community must address the financing of these upgrades, potentially through mechanisms like shipowner levies or green transition funds. Without these changes, the industry may continue to face challenges such as flag hopping and opaque ownership chains.
Beyond the Headlines
The ship recycling industry's challenges highlight broader issues of sustainability and governance. The current system, which exports environmental and labor risks to South Asia while retaining moral authority in high-income countries, is unsustainable. Aligning law, economics, and geography is crucial for achieving true sustainability. The industry's reliance on South Asia is unlikely to change, given the region's unmatched capacity and natural conditions. The international community must acknowledge this reality and work towards functional governance that balances regulatory standards with economic and geographical realities.
