In 2021, over 14 million gross tonnes of ships were dismantled, with a third owned by European firms and largely scrapped in South Asia. This practice exports high-quality scrap steel that could otherwise support low-carbon steelmaking in Europe. However, EU carbon market rules currently favour carbon-intensive blast furnaces over cleaner electric arc furnaces (EAFs) by allocating more free emissions allowances to the former. This distorts incentives, discouraging investment in greener technologies. Sandbag calls for a faster phase-out of free allowances and a more comprehensive CBAM to promote domestic recycling and decarbonisation.