ASC 818 Environmental Credits and Environmental Credit Obligations

ASC 818 establishes a dedicated accounting model for environmental credits and related obligations. The Topic applies to certain separately transferable environmental credits and related compliance obligations and distinguishes between credits held for compliance purposes and those held for other purposes. Under ASC 818, an entity recognizes an environmental credit as an asset only when it is probable that the credit will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer; otherwise, costs to obtain the credit are generally expensed as incurred, including credits acquired for voluntary sustainability initiatives.

ASC 818 separately addresses environmental credit obligations, which are recognized when events on or before the reporting date create an enforceable obligation under a regulatory compliance program, measured using the carrying amount of compliance credits expected to be used to settle the obligation plus the fair value of any additional credits needed for the unfunded portion.

ASC 818 also requires separate presentation of compliance environmental credit assets and environmental credit obligation liabilities and expanded annual disclosures about how credits are obtained and used, the accounting policies applied, significant estimates and judgments, impairment, voluntary credit expense, and the funded and unfunded portions of environmental credit obligations. The standard is intended to improve transparency, comparability, and decision-usefulness for investors and other financial statement users as environmental credit markets and compliance programs continue to grow.