The European Ship Recycling Regulation and its market implications: ship-recycling capacity and market potential

Abstract Dismantling end-of-life ships in substandard conditions has detrimental effects on the environment, labour rights and occupational health. To steer the industry’s transition towards adopting more sustainable practices, the European Union has introduced the European Ship Recycling Regulation (SRR), which includes a list of certified shipyards (the European List, EL) that are allowed to recycle EU-flagged fleet. The functionality of the SRR, and especially the adequacy of the recycling capacity included in the European List, has raised doubts among the academic community and practitioners. To increase understanding, this article reviews the recycling demand posed by existing EU-flagged fleet and compares it to the recycling capacity available in the beginning of 2020. State-of-the-art fleet statistics obtained from the Clarkson World Fleet Register are subjected to descriptive statistical analysis, regression analysis and ANOVA. The results show that the current capacity of the EL is not adequate to cover the anticipated recycling demand. This implies that substantial additional capacity located outside the EU is needed. At the current commodity price levels the estimated market potential is not likely to attract enough newcomers that meet the standard to the market. The scrapping prices may decline significantly increasing the cost of replenishment for the shipping business. The article makes a solid policy contribution in terms of evaluating the implications of the SRR and providing valuable insights for the future in a context in which policymaking is constantly evolving.