FASB Issues Guidance on the Accounting for Environmental Credit Programs

The FASB has issued Accounting Standards Update (ASU) No. 2026-02, Environmental Credits and Environmental Credit Obligations (Topic 818). The ASU introduces a comprehensive model that establishes recognition, measurement, presentation, and disclosure requirements for (1) environmental credits and, when applicable, (2) compliance obligations that may be settled by using environmental credits. The current guidance in U.S. GAAP does not explicitly address how to account for these items.

The guidance in the ASU is expected to affect many different types of companies, particularly those with operations subject to environmental regulations and those that acquire environmental credits to achieve internal targets related to carbon footprint initiatives.

For public companies, the ASU will become effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. For nonpublic business entities, the ASU will become effective for annual reporting periods beginning after December 15, 2028, and interim reporting periods within those annual reporting periods.

For more information, see the press release on the FASB’s Web site.