Environmental liabilities and asset retirement obligations

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Contaminated sites

An environmental liability for the 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 used reflects the Government's cost of borrowing, and is based on the term rate associated with the estimated number of years to complete remediation.

The Government has identified approximately 7,500 sites (7,900 sites in 2016) 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 2016), where action is possible and for which a gross liability of $5,705 million ($5,954 million in 2016) has been recorded. This liability estimate has been determined based on site assessments performed by environmental experts. In addition, a statistical model based upon a projection of the number of sites that will proceed to remediation and upon which current and historical costs are applied is used to estimate the liability for a group of unassessed sites. As a result, there are 4,100 unassessed sites (4,300 sites in 2016) where a liability estimate of $239 million ($320 million in 2016) has been recorded using this model. These two estimates combined, totalling $5,944 million ($6,274 million in 2016), 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 on March 31.

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 Government has identified approximately 635 UXO suspected sites (893 in 2016) for which clearance action may be necessary. Of these sites, 68 are confirmed UXO affected sites (61 in 2016). Based on the Government’s best estimates, a liability of $184 million ($272 million in 2016) has been recorded for clearance action on 10 of the confirmed UXO sites (10 in 2016). Remediation has been done on one of the sites (14 in 2016) and it will be closed in the next fiscal year. The remaining 624 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 68 of them, indeterminable for 146 and unlikely for the 410 remaining.

Asset retirement obligations

Asset retirement obligations are estimated costs related to obligations associated with the retirement of tangible capital assets. 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 estimated future cash flows are adjusted for inflation using a rate that is derived on the basis of Consensus forecasts and Bank of Canada historical and target inflation rates. The discount rate is a weighted average rate reflecting the Government’s cost of borrowing on initial recognition and on subsequent changes to expected cash flows, which is most closely associated with the period to settlement of the obligation.

The asset retirement obligation is $6,498 million ($6,767 million in 2016) of which Atomic Energy of Canada Ltd. has recorded $6,492 million ($6,763 million in 2016) for nuclear facility decommissioning.

The changes in the asset retirement obligations during the year are as follows:

(in millions of dollars)

  2017 2016
Opening balance 6,767 6,502
Liabilities settled (negative 251) (negative 219)
Revision in estimate (negative 280) 233
Accretion expenseLink to footnote 1 262 251
Closing balance 6,498 6,767

The recorded 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's ongoing efforts to assess contaminated sites, UXO affected sites and asset retirement obligations 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, other environmental liabilities and asset retirement obligations.

Table 5.7
Environmental liabilities and asset retirement obligations
(in dollars)

  March 31, 2017 March 31, 2016
Remediation liabilities for contaminated sites
Departments and agencies
Agriculture and Agri-Food 3,423,088 4,836,741
Canada Border Services Agency 1,165,597 1,183,764
Correctional Service of Canada 3,160,429 1,708,685
Environment 195,602,662 141,417,724
Fisheries and Oceans 112,154,402 108,219,424
Foreign Affairs, Trade and Development 15,000 15,000
Health 100,790 172,705
Indian Affairs and Northern Development 3,421,838,583 3,795,691,347
National Defence 536,639,813 519,370,599
National Research Council of Canada 2,718,164 240,832
Natural Resources 4,907,906 4,614,482
Parks Canada Agency 50,638,172 37,236,526
Public Works and Government Services 217,809,560 258,591,282
Royal Canadian Mounted Police 9,134,394 6,419,203
Transport 198,378,127 188,399,845
Subtotal 4,757,686,687 5,068,118,159
Consolidated Crown corporations and other entities
Atomic Energy of Canada Limited 1,081,866,000 1,109,493,000
Canadian Broadcasting Corporation 390,000 343,000
Marine Atlantic Inc 377,000
National Capital Commission 50,831,000 50,345,000
The Federal Bridge Corporation Limited 890,000 1,420,000
The Jacques-Cartier and Champlain Bridges Inc. 46,675,000 43,170,000
VIA Rail Canada Inc. 335,000 300,000
Windsor-Detroit Bridge Authority 5,840,000
Subtotal 1,186,827,000 1,205,448,000
Gross remediation liability for contaminated sites 5,944,513,687 6,273,566,159
Less expected recoveries—Indian Affairs and Northern Development 27,441,114 30,681,572
Net remediation liability of contaminated sites 5,917,072,573 6,242,884,587
Other environmental liabilities
Departments and agencies
National Defence (unexploded explosive ordnance affected sites) 183,848,755 272,072,942
Asset retirement obligations
Departments and agencies 596,109 577,920
Consolidated Crown corporations and other entities
Atomic Energy of Canada Limited (nuclear facility decommissioning) 6,492,243,000 6,763,423,000
Others 5,121,000 3,015,000
Total 6,497,364,000 6,766,438,000
Total asset retirement obligations 6,497,960,109 6,767,015,920
Total environmental liabilities and asset retirement obligations 12,598,881,437 13,281,973,449

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 liabilities previously recorded, the government spent another $33,673,083 ($18,462,079 in 2016) as management and remediation costs on its contaminated sites when these costs became known in the year.

Table 5.8
Changes in liability for remediation of contaminated sites
(in dollars)

  March 31, 2017 March 31, 2016
Opening balance 6,273,566,159 5,810,439,124
Less: Expenditures reducing opening liabilities 414,126,248 298,932,567
Add:
Changes in estimated remediation costs 42,885,906 544,754,907
New liability for sites not previously recorded 42,187,870 217,304,695
Closing balance (gross) 5,944,513,687 6,273,566,159
Expected recoveries 27,441,114 30,681,572
Closing balance (net) 5,917,072,573 6,242,884,587

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