FASB Issues ASU on Accounting for Environmental Credits Under New Topic 818

FASB Fills a Critical Gap in Environmental Credits Accounting

On May 19, 2026, FASB issued an Accounting Standards Update establishing new Topic 818, Environmental Credits, which provides comprehensive guidance on the recognition, measurement, presentation, and disclosure of environmental credits and environmental credit obligations under US GAAP. The standard addresses a significant and growing area of practice where no authoritative guidance previously existed.

Scope and Applicability

Topic 818 applies to all entities — regardless of size or industry — that:

• Generate environmental credits through qualifying activities (e.g., renewable energy certificates, carbon offset projects);
• Purchase or receive credits for investment, hedging, or compliance purposes; or
• Hold regulatory compliance obligations that can be settled using environmental credits (e.g., cap-and-trade programs, renewable portfolio standards).

The breadth of the scope signals FASB's intent to standardize practice across highly diverse industries, from utilities and energy producers to manufacturing companies subject to emissions regulations.

Recognition and Measurement

The ASU establishes specific recognition criteria for when environmental credits should be recorded on the balance sheet and how they should be measured — an area where practice had varied widely, with some entities using cost, others fair value, and others following analogies to intangible assets. Under Topic 818, entities must apply the prescribed measurement basis consistently, reducing the diversity in practice that had complicated investor analysis.

For entities already applying ASC 820, Fair Value Measurement to certain environmental credit portfolios, the new guidance will need to be evaluated alongside existing fair value frameworks to determine whether measurement adjustments are required.

Disclosure Requirements

Topic 818 introduces robust disclosure requirements designed to give financial statement users transparency into the nature, volume, and financial impact of environmental credit activities. Entities will need to disclose their accounting policies, the types and quantities of credits held, and the nature of related compliance obligations.

Contingencies Interaction

Entities with regulatory compliance shortfalls — where credits are needed to satisfy a liability — should reassess whether their obligations are properly reflected under ASC 450, Contingencies, in conjunction with the new Topic 818 requirements.

Effective Date

Entities should monitor the FASB website for effective date, transition method, and early adoption details included in the full ASU text.

"The new ASU adds guidance that will provide clarity around accounting and disclosures that previously did not exist in environmental credits and related credit obligations," said FASB Chair Richard R. Jones.