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Environment Commissioner Scott Vaughan calls the Giant Mine in Yellowknife, shown in 2006, 'a cautionary tale' about the government's handling of contaminated sites.

The federal government is on the hook for billions of dollars to fix problems caused by lax environmental regulation in the past, according to a new audit.

Ottawa is looking at $7.7-billion in cleanup costs for contaminated sites, but has only set aside a fraction of the necessary funding, Environment Commissioner Scott Vaughan found.

As the government reforms the environmental assessment process, it's worth remembering the high price of slipshod oversight from previous decades, Mr. Vaughan said at a news conference Tuesday.

Most of the contaminated sites date back to between 1940 and 1970, well before environmental regulations cracked down on resource extraction and development, the watchdog said.

Now, the federal government wants to streamline the environmental assessment process so that it does not delay legitimate economic activity for years. That's something Mr. Vaughan proposed in past reports.

But critics say that in changing the process, the federal Conservatives are also weakening oversight by politicizing decision-making, requiring fewer assessments, focusing only on major projects and handing power to provinces that might be ill-equipped to handle it.

The impact of lax oversight can be "forever," Mr. Vaughan warned, pointing to the Giant Mine in Northwest Territories, where the plan to deal with arsenic compounds left over from decades ago is to freeze it deep underground.

"I think it's a cautionary tale for moving forward," the watchdog said.

About 9,000 out of 22,000 designated contaminated sites have been dealt with, but there is not enough money set aside to fix the remaining sites, his audit found.

The biggest sites – including the Giant Mine as well as the low-level radioactive waste dumps in Port Hope, Ont. – are at the top of the government's priority list for cleanup, but they are devouring the federal funding, Mr. Vaughan said.

The audit found there is a shortfall of about $500-million to deal with the sites that have been assessed so far. Little is available to evaluate other sites.

"Many of the sites are buried and out of sight, but they will impose environmental and financial burdens on coming generations," Mr. Vaughan said.

Hundreds of the sites are in cities, he said, pointing in particular to Ottawa and Montreal. And often the sites are near aquifers that are tapped for drinking water.

However, many of the sites are still to be evaluated, so no one really knows how risky they are, the audit noted.

"The full extent of risks that federal contaminated sites present to the environment and human health remains unknown as well as the financial exposure of these sites."

But Environment Minister Peter Kent noted that the cleanup program is only half over, is making good progress and will continue to chip away at the stack of problems left over from previous governments.

"It's only at its midway point," he told the House of Commons.

He also criticized the environmental auditor for using information that was a year old.

His spokesman said government information on all designated contaminated sites is easily available to the public through a live database on the Treasury Board website.