FASB Issues Guidance on Environmental Credits and Related Obligations
This Financial Reporting Insights describes the key provisions of Accounting Standards Update (ASU) No. 2026-02, Environmental Credits and Environmental Credit Obligations (Topic 818), which the Financial Accounting Standards Board (FASB) issued on May 19, 2026. This new guidance provides a comprehensive accounting model for all entities that generate, purchase or receive environmental credits or have a regulatory compliance obligation that may be settled with environmental credits.
The new guidance defines “environmental credits” and when they should be recognized as assets and distinguishes between compliance and noncompliance credits for purposes of subsequent measurement. The guidance also requires enhanced disclosures about how credits are obtained, used and valued.
Additionally, the new guidance defines “environmental credit obligations”, clarifying when entities must recognize environmental credit obligation liabilities arising from regulatory compliance programs and how those liabilities are measured, and includes disclosure requirements related to those obligations.
The amendments in ASU 2026-02 are effective for public business entities in annual periods beginning after December 15, 2027, including interim periods therein, and one year later for all other entities. Early adoption is permitted for all entities.