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Ship Recycling at the Port of Newcastle and the promotion of green steel?

5 June 2023
From our ‘Thinking outside the box’ series
Veronica Schulz and Michael Bell look at possible opportunities for a ship recycling industry in Australia given the coincidence of recent developments in regulations and environmental concerns around the world.

The shipping industry is a major driver for the global economy and shipbuilding is a pathway for economic growth and development. After 25 to 35 years of service at sea, every ship comes to the end of its first life and issues of recycling, repurposing or disposal arise. The current ship recycling industry is built on unsustainable foundations for both society and the natural environment. About 90% of ships (in gross tonnage) are recycled in just three countries, Bangladesh, India and Pakistan, where labour is cheap, working conditions are often unsafe, and environmental pollution is generally excessive (United Nations UNCTAD, 2021). Recycling ships at facilities in these countries is, however, attractive to shipowners despite the unsustainable and unsafe conditions because they receive more for their ships.

Some attempts have been made to regulate the ship recycling industry. The Basel convention of 2004 classified end-of-life ships as ‘waste’ and required ships flagged in OECD states to be recycled in OECD states. The Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships, adopted 2009, extended this principle to all ratifying states along with conditions to improve the safety and sustainability of recycling (International Maritime Organisation, 2022b). However, it is now more than a decade later and the convention is still not in force as 40 per cent of the world fleet is yet to be flagged (registered) in states that have ratified the convention. Consequently, some states feel compelled to act leading to the European Union (EU) Ship Recycling Regulation of 2013, which stipulates that all EU-flagged ships must be recycled at an approved facility (Directorate-General for Environment, 2022). Facilities from any country can join the list provided the safety and environmental conditions are met. There is some anecdotal evidence that suggests some ship owners switch ships away from EU flags just prior to recycling to circumvent the EU regulation (Gourdon, 2019).

The increasingly strict regulation of ship recycling is coinciding with an anticipated rush of ships for recycling, either because they are surplus to requirements in the post-pandemic global economy or because IMO environmental regulations starting in 2023 will lead to the scrapping of substandard ships (Ford, 2022). From 2023, ships above a certain size and engaged in international trade will need to meet new efficiency and carbon intensity standards. Ships that have an Energy Efficiency Existing Ship Index (EEXI) that exceeds a threshold will need an enhanced Ship Energy Efficiency Management Plan (SEEMP) that lays out energy efficiency improvement steps. Furthermore, each ship will be rated on a scale A to E with respect to a Carbon Intensity Indicator (CII). Ships with an unacceptable rating will not be allowed to operate by states that have ratified the latest incarnation of the MARPOL convention (International Maritime Organisation, 2022a). Furthermore, there is evidence that the CII rating is affecting the value of ships (Chambers, 2023).

This coincidence of developments in ship recycling could create an opportunity for the industry to develop in Australia if a way can be found to reduce labour costs and the environmental impact. Ship recycling is typically done using one of four methods: Dry docking, pier breaking, landing, and beaching (Gourdon, 2019). There are benefits and drawbacks to each method. Dry docking reduces environmental pollution but still requires manual labour and is relatively expensive due to dock maintenance requirements. Pier breaking and landing involves less manual labour. However, both uf these methods have high rates of pollution. While the beaching method typically has the lowest costs, highest labour intensity and high pollution rates are problematic.

With higher labour costs in Australia, and more stringent safety and environmental conditions, the ship recycling method needs to be reconsidered. One way to minimise health, safety and environment issues is to automate the ship dismantling process. Major technological advantages are occurring in the automation space. One start-up, Circular Marine Technologies (CMT), is developing a fully automated ship recycling process. CMT’s process involves bringing ships ashore to be cleaned using recycled wastewater and then slicing the ship into sections “like a loaf of bread” (Bartlett, 2022). Breaking down ships into smaller sections allows for easier automated handling with minimal manual labour requirements. The CMT concept also suggests that the methane captured from organic matter on the ship could be converted into cleaner fuels like LNG or hydrogen to power the ship recycling precinct. Whether enough organic matter can be recovered from the ships to power the entire facility is unclear. Overall, CMT argues that automating the process will allow them to price match south Asian facilities (Bartlett, 2022).

The main resource that is recovered from recycling ships is scrap steel which can be recycled without losing any structural integrity (unlike recycled concrete which loses structural strength) (Planet Ark, 2020). With the steel making process being so energy intensive, the demand for scrap steel, which on average uses 75% less energy than virgin steel, is relatively high (Planet Ark, 2020). Indeed, steel is one of the most recycled materials and about 30% of the global steel production originates from scrap steel (Berlin et al., 2022). In most ships there are leftover equipment and materials such as radios or furniture. In many beaching facilities, these items are scavenged and further sold in second-hand markets. Recovering scrap steel from the ships would require some pre-processing and building this step into the automated process would further increase its ‘circularity’. Overall, there are prospects for both exporting scrap steel through the Port of Newcastle or using it locally for steel products.

Introducing an automated ship recycling facility at the Port of Newcastle could be beneficial for their continuing efforts to diversify away from coal exports. The availability of plentiful vacant space in the port precinct dating back to the closure of the BHP steel works in 1999, deep water access, and a skilled workforce of engineers would favour such a development. The prospect for the automated ship recycling facility is just one circular economy ecosystem that could be located at the port with the potential to accelerate New South Wales’s decarbonisation strategy. In fact, the possibility of locating a ship recycling facility at the Port of Newcastle could be a major driver of industrial development at the port and in the Hunter region by creating a supply of recycled material, in particular scrap steel. With higher safety and environmental regulations, a facility at the Port of Newcastle could be compliant with OECD, Hong Kong Convention, EU and US conditions for ship recycling. Development of a compliant Australian ship recycling industry would assist the growing logjam of end-of-life ships to be recycled in a safe and sustainable way.

The challenge with automated ship recycling is reducing the costs to compete with beaching in south Asia. The capital investment required to construct the automated recycling facility would most likely increase costs despite potential labour savings. The availability of carbon credits could, however, lead to the commercial success of the project. The Australian carbon market operates by using Australian Carbon Credit Units (ACCUs), which are tradeable permits that projects can receive if they avoid, reduce, or remove carbon (or equivalent) from the atmosphere (Clean Energy Regulator, 2020). ACCUs can be traded to companies with unavoidable carbon emissions. By claiming ACCUs for the recycled steel, there is an additional revenue stream for the ship recycling facility, which may make the process more attractive.

There are, however, some problems with Australia’s carbon credit market. There is no mandatory involvement for companies emitting carbon, and this consequently leads to low and often volatile prices for ACCUs. Legislative changes would improve the success and efficacy of the scheme, and therefore likely to eventuate at some point. In the meantime, it would be worth estimating at what price for an ACCU a ship recycling facility at the Port of Newcastle could compete with beaching in south Asia.

With the development of an ambitious ‘Green Hydrogen Hub’ at the Port of Newcastle, there is also the prospect of making green steel (Port of Newcastle, 2020). Research developments in Australia are accelerating the potential for green steel manufacturing. In traditional steel making, coking coal is used as an ingredient to heat the furnaces. The green steel making process uses green hydrogen produced by electrolysis using renewably generated electricity and water and carbon sourced eventually from the atmosphere. Thus, the carbon footprint of green steel is substantially lower than traditional steel. The prospect of steel making returning to Newcastle, on the back of ship recycling would indeed be a remarkable turnaround to the once former ‘steel city’, particularly if it is green steel.

The development of a ship recycling facility at the Port of Newcastle would require both private sector involvement and policy support from government. However, increasing ESG and SDG pressures on companies to comply with OECD, IMO and EU recycling regulations combined with ACCUs could make ship recycling commercially viable in Australia and eventually lead to Australia becoming a major player in this sector as well as the green steel industry.


Bartlett, P. (2022). Circular’ recycling plan could ease demo logjam. Seatime Maritime News.

Berlin, D., Feldmann, A., & Nuur, C. (2022). Supply network collaborations in a circular economy: A case study of Swedish steel recycling. Resources, Conversation & Recycling, 179, 106112.

Chambers, S (2023). Ships with CII’s lowest rating suffer significant drop in value. Splash247, 17/3/23, viewed 19/3/23.

Clean Energy Regulator. (2020). Australian carbon credit units.

Directorate-General for Environment. (2022). Ship Recycling: Updated list of European facilities includes three new yards. European Commission.

Ford, M. (2022). Less than 6 months until IMO 2023 – is your business ready?. BDP.

Gourdon, K. (2019). Ship recycling: An overview. OECD.

International Maritime Organisation. (2022a). Rules on ships carbon intensity and rating system enter into force. IMO.

International Maritime Organisation. (2022b). Status of IMO Treaties. IMO.

Planet Ark. (2020). Iron & Steel.

Port of Newcastle. (2020). Port of Newcastle Green Hydrogen Hub.

United Nations UNCTAD. (2021). Ship recycling, by country, annual. United Nations Conference on Trade and Development.