EU attempts to promote recycling risk perverse consequences: opinion

Since the April issue of The Motorship went to press, there has been no let up in the relentless pace of regulatory developments in the shipping sector. The June meeting of the IMO’s MEPC committee looks set to be highly significant, with a number of market participants confidently expecting the IMO to raise its 2050 decarbonisation objective from 50% to full decarbonisation.

This is likely to be a somewhat easier decision for the IMO to make than more politically challenging decisions around the introduction of a potential global carbon levy, or a cap and trade scheme.

However, the extension of the EU’s Emissions Trading System (ETS) to shipping, which was finally approved by the European Parliament in mid April, will force owners and operators to update systems to report and verify environmental emissions, as we hear in this month’s issue. We would urge small and medium sized owners and operators who have not yet ensured that their existing DRS emissions reporting processes will be compliant when the new ETS reporting requirements come into force to do so as a matter of urgency.

Returning to the impact of higher environmental targets, it is uncontroversial to expect rising environmental standards to impact newbuilding designs over the course of the current decade. Such expectations underpin the development strategies of developers like Corvus Energy, who openly admit that tighter environmental regulation is likely to be a key driver of the introduction of innovative technologies, such as fuel cells. The Motorship continues to follow developments in the fuel cell sector closely, but expects that fuel cells will struggle to match the reliability and performance of internal combustion engines in the maritime sector until the mid-2030s.  

Even if higher decarbonisation targets are not agreed at MEPC80, or if those changes are ‘backloaded’ with the steepest reductions in emissions expected after 2033, many ship owners will need to improve the environmental profile of their existing tonnage. It is no coincidence that the number of retrofit solutions to convert existing engines to operate on alternative fuels, or perhaps simply to improve their emissions profile until the early to mid 2030, are entering the market in increasing numbers. As Nanda Sangram of Wartsila 2-stroke explains in an exclusive interview with The Motorship in this month’s issue, technological choices when commissioning retrofits are likely to be influenced by the remaining operational life of an asset.

More changes loom

However, such calculations are likely to be complicated by the emergence of tighter end-of-life regulations. The Motorship understands that the European Commission is considering introducing tighter rules to require EU-flagged vessels to be demolished and recycled in EU certified yards. Such proposals would risk confirming observers’ fears that the current EU Ship Recycling Regulation consultation will not be extended to include more yards located in South Asia.

As a former (journalistic) steelhand, I am intrigued by the idea of incentivising European recycling using carbon credits or other regulatory instruments. But it is also likely to result in lower sales prices for ship owners. The paradoxical effects of well meaning reforms to promote the development of domestic recycling based supply chains can be well imagined by looking at the impact of the United States’ own Jones Act on fleet age profiles.