The shipping industry has been accused of being one of the world’s most dirty industries. Greenhouse gas emissions (GHG) have recently garnered considerable attention in the scientific, international, political and public discourse. The fact that shipping was omitted from the Paris climate agreement, due primarily to the fact that assigning emissions to a single country is challenging, has exacerbated the concerns. On the positive side of things, three weeks ago the International Maritime Organization (IMO) adopted for the first time a strategy to reduce emissions and ultimately phase them out within this century. Specifically, the ambition is to reduce 2008 level GHG emissions by at least 50% by 2050, to push forward the energy efficiency design index for minimizing carbon intensity, and to reduce 2008 level CO2 emissions by at least 40% by 2030 (and 70% by 2050).

Other issues that often challenge the shipping industry’s environmental profile include other types of pollutant air emissions such as sulphur oxides (SOx), nitrogen oxides (NOx) and particulate matter (PM). Other pollutant threats include the transfer of invasive species (through e.g. ballast water and hull fouling), harmful antifouling systems, cargo residues, garbage discharge (on board and on land), wastewater treatment, underwater noise pollution and many more. Institutional mechanisms and agreements in place such as MARPOL[1], SOLAS[2], the Sulphur Directive, the MRV Regulation[3], the PRF Directive[4], the AFS convention[5], the Ballast Water Management convention[6], the Biofouling Guidelines[7], the London convention[8], the PSSA guidelines[9], the OPRC-HNS Protocol[10], despite their limitations and implementation difficulties, have all contributed to significant progress in improving shipping practices worldwide.

While the establishment of those instruments, the technological constraints, and the difficulties in achieving consensus (e.g. in the ratification of conventions) have brought the operational part of shipping to the forefront of public consideration, there has been relatively little discussion about the challenges associated with the end of a vessel’s life. Ship scrapping, cracking, breaking, dismantling, recycling, or ship demolition all refer to the process of breaking up ships for extracting parts that can be sold for re-use or raw materials.

Among the ships scrapped every year for steel and other valuable material (approximately 1,000 ships annually depending on market prices for those materials), about 75% of them are beached for scrapping on tidal beaches of South Asia. Scrapping often takes place there under dangerous conditions that involve health and occupational risks, also bringing uncontrolled pollution to coastal areas. Oil, oil sludge, and other hazardous materials such as asbestos, polychlorinated biphenyls (PCBs) and tributyl tin that are found in old ships all pose significant threats for local communities and the environment. The number of fatal injuries associated with poor working conditions in places like Bangladesh, India and Pakistan, together with the violation of international hazardous waste management laws, has managed to make scrapping a popular topic in the media. This has also generated public debate, as when recently (2016) Maersk, the world’s largest container ship and supply vessel operator, sent Maersk Georgia and Maersk Wyoming to beaches of India to be scrapped under questionable conditions and against the company’s commitments and standards. Even more recently, Seatrade, a Dutch shipping company was fined for illegally sailing ships for scrapping in India; more cases of illegal scrapping are currently under investigation by national authorities in places like Norway and the UK.

As in the case of all other shipping-associated challenges, the biggest problems do not seem to lie in the institutional mechanisms and regulatory frameworks for scrapping but rather in the lack of incentive mechanisms that can change shipowners’ behavior. Vessels are typically sold to ‘cash buyers’ or ‘middle men’ who establish connections between shipowners and scrapyards in South Asia and specialize in buying and reselling scrap ships, while they are also capable of changing the ship’s flag and class if needed. As seen in other industries, such as in fisheries for example (IUU, bycatches, discards etc), incentives for compliance behavior need to be studied more in depth so as to supplement existing regulations and institutions.

Examples of institutional mechanisms (with and without pitfalls) currently in place include the non-yet ratified Hong Kong Convention, the Basel Convention that currently covers the gap in sales of vessels for demolition, the EU’s Ship Recycling Regulation and the Ship Recycling Transparency Initiative. The EU has also recently issued a list of 18 safe and sound ship recycling facilities in Europe, putting a mandate for all large commercial seagoing vessels with an EU flag to be scrapped there by the end of 2018. While this mandate is a critical step towards facilitating ‘safe and sound ship recycling’, it certainly has pitfalls that prevent changing outcomes very well; e.g. the possibility of switching to a non-EU flag that enables scrapping in a non-certified scrapyard has not been adequately addressed.

While most of the discussions focus on ways to overcome the environmental and health hazards by putting an end to beaching and by moving scrapping to the Western world, there’s little being said about what that means for those South Asian countries where beaching currently takes place. In some cases, shipowners seem to be quite well aware of the implications of selling an old ship to a middle man. Andreas Bargfried, a software supplier to shipping companies, brings this forward in quite an elegant way for one of his clients: ‘Greenpeace will chase you and widows will curse you, but what choice did he have? After all, the countries involved could simply forbid the practice or release new regulations’.

In India, 41 out of 120 scrapyards now meet the Hong Kong convention standards and about 15 more scrapyards are transitioning towards ‘safer and cleaner’ working environments. However, that is not the case in places like Bangladesh and Pakistan. Alang, the most controversial beach for scrapping in India, employs about 66,000 people, while in Bangladesh there are about 22,000 people employed in scrapyards and roughly 200,000 people indirectly employed in the industry, not counting the ‘extended families’. Chittagong, the most controversial beach for scrapping in Bangladesh, has a prominent position in the nation’s steel production and therefore its economy; those are all reasons that work against changes that can put the industry at risk, such as for example changes that may come through the ratification of the Hong Kong convention.

If one takes into account what Western policy on scrapping brings forward regarding not only minimizing environmental impacts and occupational/ health hazards but also endangering livelihoods of workers in the world’s poorest countries, the problem does look like a mammoth challenge. Stakeholders within the maritime industry and policy makers need to find ways to integrate existing institutions with complementary incentive-inducing mechanisms but also bring forward to the policy arena a more holistic picture of the problem.

The challenges highlighted in the literature for cost-benefit analyses in developing countries, and the differences in the ways of thinking about trade-offs there, can be a very useful start. Examples include tighter budgetary constraints in developing economies, lower opportunity costs associated with black-economy labor that moves from one sector to another, large magnitudes of household production that can be underestimated when using market behavior-based valuation techniques, large information asymmetries, difficulties in valuing intangible goods and externalities, large fluctuations on exchange rates that prevent accurate estimates of tradable goods, difficulties in calculating social discount rates and overestimates in social-time preference rate due to lower lifespans and incomes, larger loss aversion that challenges willingness to pay methodologies, differences in the way sunk costs are perceived and many more. The largest limitation though of cost-benefit analysis is that it fails to reflect the distribution of benefits and costs among different social classes, therefore exacerbating inequality. Assigning weights to help ‘reflect the relative importance of monetary values to different social classes’, is particularly challenging in the context of developing countries.

Image caption: Hong Kong flagged vessel, formerly known as Dirch Maersk, that was scrapped by the Maersk group on the controversial beach of Alang in India. Photo Credit: Mærsk

[1] ​​​The International Convention for the Prevention of Pollution from Ships

[2] International Convention for the Safety of Life at Sea

[3]  EU MRV (Monitoring, Reporting, Verification) regulation

[4] Port Reception Facilities Directive (2000/59/EC)

[5] International Convention on the Control of Harmful Anti-fouling Systems in Ships

[6] International Convention for the Control and Management of Ships’ Ballast Water and Sediments

[7] Guidelines for the control and management of ships’ biofouling to minimize the transfer of invasive aquatic species

[8] Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter

[9] Particularly Sensitive Sea Area

[10] Protocol on Preparedness, Response and Co-operation to Pollution Incidents by Hazardous and Noxious Substances