Environmental liabilities

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Environmental liabilities consist of estimated costs related to the remediation of contaminated sites, estimated costs related to obligations associated with the retirement of tangible capital assets and other environmental liabilities.

Contaminated sites

A liability for remediation of contaminated sites is recognized when all of the following criteria are satisfied: an environmental standard exists, contamination exceeds the environmental standard, the Government is directly responsible or accepts responsibility, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. The liability reflects the Government's best estimate of the amount required to remediate the sites to the current minimum standard for its use prior to contamination. When the future cash flows required to settle or otherwise extinguish a liability are estimable, predictable and expected to occur over extended future periods, a present value technique is used. The discount rate applied is taken from the Government's Consolidated Revenue Fund monthly lending rates for periods of one year and over which is based on the Government's cost of borrowing. The discount rates used are based on the term rate associated with the estimated number of years to complete remediation. For remediation costs with estimated future cash flows spanning more than 25 years, the 25-year Consolidated Revenue Fund lending rate is used as the discount rate.

The Government has identified approximately 7,900 sites (8,600 sites in 2015) where contamination may exist and assessment, remediation and monitoring may be required. Of these, the Government has identified approximately 2,400 sites (2,400 sites in 2015), where action is possible and for which a gross liability of $5,954 million ($5,810 million in 2015) has been recorded. This liability estimate has been determined based on site assessments performed by scientific/engineering contractors. In 2016, a statistical model was developed to estimate the liability for a group of unassessed sites based on a projection of the number of sites that will proceed to remediation and applying current and historical costs. As a result, there are 4,300 unassessed sites where a liability estimate of $320 million has been recorded prospectively in 2016. These two estimates combined, totalling $6,274 million ($5,810 million in 2015), represents the Government's best estimate of the costs required to remediate sites to the current minimum standard for its use prior to contamination, based on information available at the financial statement date.

Asset retirement obligations

A liability for an asset retirement obligation is recognized when all of the following criteria are satisfied: there is an agreement, contract, legislation, or a constructive or equitable obligation that obligates the Government to incur retirement costs in relation to a tangible capital asset, the past event or transaction giving rise to the retirement liability has occurred, it is expected that future economic benefits will be given up and a reasonable estimate of the amount can be made. These costs are normally capitalized and amortized over the asset's estimated useful life based on the Government's best estimates of the cost to retire the tangible asset. If the related asset is fully amortized, the related cost is expensed. The liability reflects the present value of estimated future cash flows required to retire the assets where amounts can be reasonably estimated and is expected to be settled as the related sites, facilities or assets are removed from service.

The asset retirement obligation is $6,767 million ($6,502 million in 2015) of which Atomic Energy of Canada Ltd. has recorded $6,763 million ($6,487 million in 2015) for nuclear facility decommissioning. In 2016, an amount of $233 million ($107 million in 2015) for the revisions in estimate and timing of expenditures was recorded. Also, an amount of $251 million ($250 million in 2015) was recognized to account for the unwinding of discount and the effect of change in discount rate and an amount of $ 219 million ($200 million in 2015) was recorded to settle the liabilities.

Other environmental liabilities

A liability for unexploded explosive ordnance (UXO) affected legacy sites is recognized when there is an appropriate basis for measurement and a reasonable estimate can be made. These liabilities are present obligations arising from past transactions or events, the settlement of which is expected to result in the future sacrifice of economic benefits.

The recorded environmental liabilities are adjusted each year, as required, for present value adjustments, inflation, new obligations, changes in estimates and actual costs incurred.

If the likelihood of the Government's responsibility is not determinable, a contingent liability is disclosed in the notes to the consolidated statements. If measurement uncertainty exists it is also disclosed in the notes to the consolidated statements.

The Government has identified approximately 893 UXO (918 in 2015) suspected sites for which clearance action may be necessary. Of these sites, 61 (57 in 2015) are confirmed UXO affected sites. Based on the Government's best estimates, a liability of $272 million ($1.3 million in 2015) has been recorded for clearance action on 10 (5 in 2015) of the confirmed UXO sites. Remediation has been done on 14 of the sites and they will be closed in the next fiscal year. The remaining 869 suspect sites are currently in the assessment stage and a reasonable estimate cannot yet be determined. Of these sites, the obligation for clearance action is likely for 61 sites, indeterminable for 667 sites and unlikely for 141 sites.

The Government's ongoing efforts to assess contaminated sites, asset retirement obligations and UXO affected sites may result in additional environmental liabilities.

Table 5.7 presents the liability balances of the custodian departments and Crown corporations for remediation liabilities for contaminated sites, asset retirement obligations and other environmental liabilities.

Table summary

The table presents, in dollars, a two-year comparative of the environmental liabilities for custodian departments and Crown corporations. It consists of three columns: a detailed listing of components; current year ended March 31; previous year ended March 31. The first series of rows presents the remediation liabilities for contaminated sites by department and by Crown corporation with related subtotals. The following rows of the series present the gross remediation liability for contaminated sites minus expected recoveries. The second series of rows presents the asset retirement obligations by department and by Crown corporation with related subtotals and a row for the total of the series. The third series of rows presents other environmental liabilities by department. A final row presents the total of this table.

Table 5.7
Environmental liabilities

(in dollars)

  March 31, 2016 March 31, 2015
Remediation liabilities for contaminated sites
Departments and agencies
Agriculture and Agri-Food 4,836,741 2,422,353
Canada Border Services Agency 1,183,764 2,479,624
Correctional Service of Canada 1,708,685 2,017,213
Environment 141,417,724 122,609,100
Fisheries and Oceans 108,219,424 104,558,273
Foreign Affairs, Trade and Development 15,000
Health 172,705 167,497
Indian Affairs and Northern Development 3,795,691,347 3,017,667,968
National Defence 519,370,599 425,387,988
National Research Council of Canada 240,832 170,421
Natural Resources 4,614,482 988,830,523
Parks Canada Agency 37,236,526 24,171,903
Public Works and Government Services 258,591,282 314,549,713
Royal Canadian Mounted Police 6,419,203 2,874,887
Transport 188,399,845 146,573,661
Miscellaneous adjustment 580,000,000
Subtotal 5,068,118,159 5,734,481,124
Consolidated Crown corporations and other entities
Atomic Energy of Canada Limited 1,109,493,000
Canadian Broadcasting Corporation 343,000 377,000
Marine Atlantic Inc 377,000 431,000
National Capital Commission 50,345,000 43,850,000
The Federal Bridge Corporation Limited 1,420,000
The Jacques-Cartier and Champlain Bridges Incorporated 43,170,000 31,100,000
VIA Rail Canada Inc. 300,000 200,000
Subtotal 1,205,448,000 75,958,000
Gross remediation liability for contaminated sites 6,273,566,159 5,810,439,124
Less expected recoveries—Indian Affairs and Northern Development 30,681,572 17,321,495
Net remediation liability of contaminated sites 6,242,884,587 5,793,117,629
Asset retirement obligations
Departments and agencies 577,920 566,494
Consolidated Crown corporations and other entities
Atomic Energy of Canada Limited (nuclear facility decommissioning) 6,763,423,000 6,487,228,000
Others 3,015,000 13,920,000
Subtotal 6,766,438,000 6,501,148,000
Total asset retirement obligations 6,767,015,920 6,501,714,494
Other environmental liabilities
Departments and agencies
National Defence (unexploded explosive ordnance affected sites) 272,072,942 1,312,586
Total environmental liabilities 13,281,973,449 12,296,144,709

Changes in liability for remediation of contaminated sites

Table 5.8 presents a summary of the changes in liability balances for contaminated sites. In addition to expenditures reducing environmental liabilities previously recorded, the government spent another $18,462,079 ($32,423,575 in 2015) as management and remediation costs on its contaminated sites when these costs became known in the year.

Table summary

The table presents, in dollars, a two-year comparative summary of the changes in liability balances for contaminated sites. It consists of three columns: a detailed listing of components; current year ended March 31; previous year ended March 31.

Table 5.8
Changes in liability for remediation of contaminated sites

(in dollars)

  March 31, 2016 March 31, 2015
Opening balance 5,810,439,124 4,795,679,415
Less: Expenditures reducing opening liabilities 298,932,567 299,922,633
Add:
Changes in estimated remediation costs 544,754,907 1,276,011,671
New liability for sites not previously recorded 217,304,695 38,670,671
Closing balance (gross) 6,273,566,159 5,810,439,124
Expected recoveries 30,681,572 17,321,495
Closing balance (net) 6,242,884,587 5,793,117,629

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