Legal risks and green opportunities in ship recycling

As the global shipping industry sails further into a new era of environmental responsibility, ship recycling has emerged as one of its most critical challenges to date.

Currently the global fleet is ageing rapidly, with approximately 30 per cent of vessels 20 years or older and therefore nearing the end of their operational lifespans. Hundreds of ships are decommissioned and recycled annually, a number that is expected to rise as environmental regulations tighten and more ships reach the end of their service.

This growing number of ageing ships has placed immense pressure on the ship recycling industry. Far from being a mere end-of-life process, ship recycling plays a pivotal role in recovering valuable resources, minimising environmental footprint and driving the industry’s transition towards more sustainable practices.

More than 90 per cent of the world’s shipbreaking takes place in south Asia, where labour is cheap and where regulatory oversight has historically been weak. This comes with significant challenges, particularly regarding environmental pollution and worker safety. The hazardous materials onboard older ships, such as asbestos and heavy metals, cause severe health risks for workers and detrimental environmental impacts, including the contamination of local ecosystems. The International Labour Organization (ILO) has identified shipbreaking as one of the most hazardous jobs in the world.

In response, a robust legal framework has developed at both international and national levels to address these challenges and promote safer, more sustainable recycling practices.
Key regulatory framework

The legal landscape of ship recycling is shaped by the following key regulatory frameworks: the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (HKC), the Basel Convention, the EU Ship Recycling Regulation (ESRR) and the EU Waste Shipment Regulation (EWSR). These regulations aim to ensure that ship recycling is conducted safely, sustainably, and with minimal environmental harm, although they differ in scope and implementation.
Basel Convention

The Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal is an international convention that was adopted in 1989 and came into force in 1992. The objective of the Basel Convention is to control the movement of hazardous waste between countries. In the context of ship recycling, the Basel Convention is relevant because end-of-life ships often contain hazardous materials like asbestos and heavy metals, which qualify as hazardous waste under the Convention. The main aim of the Basel Convention is to restrict the export of toxic and hazardous waste, including ships, from developed to developing nations where disposal facilities may not meet adequate environmental standards. To strengthen its protection to developing countries, the parties to the Basel Convention adopted the “Ban Amendment” in 1995, which came into force in 2019, prohibiting the export of hazardous waste from OECD countries to non-OECD countries.
Hong Kong Convention

Adopted by the IMO in 2009, the HKC sets global standards for ship recycling. Its key provisions include requiring ships to maintain an Inventory of Hazardous Materials (IHM) and obliging ship recycling facilities to develop and implement a ship recycling plan tailored to each vessel to ensure the safe management of hazardous materials. The HKC is designed to protect both the environment and the workers at recycling facilities by regulating hazardous materials and ensuring safer working conditions.

Despite its significance, the HKC has not yet entered into force, as it required ratification by at least 15 countries, representing 40 per cent of the world’s merchant shipping tonnage. The ratification criteria were finally met in June 2023 and, as such, the HKC will enter into force within 24 months, ie on 26 June 2025. In this regard, BIMCO has also embarked on revising its RECYCLECON contract (initially published in 2012) to align with the new regulatory landscape while adapting to the latest industry practices.
EU Ship Recycling Regulation and EU Waste Shipment Regulation

The ESRR has been in force since 2019. It largely mirrors the HKC but also imposes stricter requirements for ships flying EU flags, while its scope also extends to non-EU ships calling at EU ports, making it more comprehensive in practice. The regulation requires ships to maintain a certified IHM and mandates that EU-flagged ships can only be recycled at EU-approved ship recycling facilities. Interestingly these must adhere to higher environmental and worker safety standards than those required by HKC.

The EWSR first entered into force in 2006 to implement the obligations of the Basel Convention. On 20 May 2024 the EU law on waste shipment was modernised and updated to increase traceability of shipments of waste within the EU and strengthen the enforcement procedures to prevent illegal shipment of waste within the EU and from the EU to third countries. From 21 May 2027 any exports of EU waste to non-OECD countries will only be allowed if these countries inform the European Commission that they are willing to import waste and demonstrate that they have the ability to manage it in a sustainable manner.
Navigating the legal minefield

Despite growing efforts to regulate the industry, violations of ship recycling laws are not infrequent. Reflagging ships is a common tactic used by shipowners to avoid national and international regulations relating to ship recycling. Attempts to circumvent the existing stringent regulations by way of reflagging end-of-life ships to flags of convenience or in non-OECD states to ensure that the ships can be sent to facilities in south Asia, where shipbreaking is cheaper but less regulated, are closely monitored at both national and international levels. Shipowners found guilty of adopting the reflagging practice have been fined and, in some cases, imprisoned.
Sanctions considerations

Recently a growing area of concern is the intersection of sanctions and the ship recycling regime, adding another layer of complexity. For shipowners, sanctions – particularly those imposed by the US – present significant legal obstacles when attempting to recycle ships. In recent cases, owners of sanctioned ships have faced substantial challenges in recycling their ships, even when offering significant discounts on the ship’s price.

This is a developing situation, which, given the advanced age of the mostly sanctioned “shadow fleet”, could result in a backlog of older ships that will, essentially, be unrecyclable. If no recycling facility is willing to accept these ships, shipowners may seek alternative solutions, such as abandoning the ships, or in a worst-case scenario, attempting to scuttle them. Such actions would undoubtedly lead to serious safety and environmental concerns, increasing the risks of collisions, groundings and pollution.

On the other hand, the shortage of facilities willing to accept sanctioned ships could lead to the establishment of new recycling yards prepared to take these on. Most likely, these facilities would need to be based in far less regulated jurisdictions that are willing to flout international sanctions. As a result, these yards would need to operate outside the current international regulatory framework, perpetuating the very environmental and safety risks that the global ship recycling regime seeks to mitigate.
Green ship recycling – a collective effort

Sustainable ship recycling refers to dismantling ships in a manner that minimises environmental impact and maximises the reuse of materials in a safe and responsible way. This concept aligns with the broader goals of circular economy principles, where ship components are recycled back into the supply chain instead of being discarded.

The Ship Recycling Transparency Initiative (SRTI) is a voluntary, industry-led platform designed to promote accountability in the ship recycling sector. The SRTI was launched in 2018 by the Global Maritime Forum and provides a framework for shipowners to publicly disclose their policies, practices and performance on ship recycling. By sharing this information, the SRTI helps stakeholders, including investors and regulators, to make informed decisions, ensure safer working conditions in shipbreaking yards and drive improvements in recycling practices and reduction of hazardous waste.

This transparency not only pushes shipowners to improve their recycling practices but also fosters competition among key industry players to meet higher environmental and safety standards. Major shipping companies have committed to the SRTI to help improve the standards across the industry and encourage better practices.
Conclusion

As regulations tighten and the global push for environmental responsibility intensifies, ship recycling has evolved from a messy and dangerous process into an arena for innovation in green practices. The shift toward sustainable recycling is not just about compliance; it is about reducing our environmental footprint and setting new standards for safety and efficiency.

The stakes are high. Shipowners and operators must adapt to a changing landscape where failing to meet environmental and safety standards can lead to fines, sanctions, legal battles and reputational damage. The recent interplay between sanctions and ship recycling has added further complexity, with shipowners and recycling facilities facing significant challenges in responsibly recycling sanctioned vessels. If unresolved, this could lead to the rise of unregulated recycling facilities in jurisdictions willing to bypass international norms, perpetuating environmental and safety risks.

In an era where the world demands greater accountability and eco-consciousness, the transition to sustainable ship recycling is no longer optional – it is inevitable. The challenge for the shipping industry is to tackle recycling through the necessary legal and regulatory processes so that solving one problem does not cause another – with a view to a greener, smarter and more sustainable industry overall.
Source: Hill Dickinson