# ASC 818-10-65: Environmental Credits and Environmental Credit Obligations — Overall — 65 Transition and Open Effective Date Information

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/818/10/#65-transition-and-open-effective-date-information)

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## ASC 818-10-65: 65 Transition and Open Effective Date Information

[Read section](https://asc.understandingaccounting.org/asc/818/10/#65-transition-and-open-effective-date-information)

SEC content: no

#### Transition Related to Accounting Standards Update No. 2026-02, <em class="ph i">Environmental Credits and Environmental Credit Obligations (Topic 818)</em>

##### [818-10-65-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-65-1)

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[Accounting Standards Update 2026-02](https://asc.understandingaccounting.org/updates/asu-2026-02/)

2027-06-30

2027-12-16

2027-12-16

2027-12-16

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2028-12-16

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The following represents the transition and effective date information related to Accounting Standards Update No. 2026-02, _Environmental Credits and Environmental Credit Obligations (Topic 818)_:

**Effective date and early adoption**

1.  a
    
    Public business entities shall apply the pending content that links to this paragraph for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods.
    
2.  b
    
    Entities other than public business entities shall apply the pending content that links to this paragraph for annual reporting periods beginning after December 15, 2028, and interim reporting periods within those annual reporting periods.
    
3.  c
    
    Early adoption of the pending content that links to this paragraph is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. If an entity adopts the pending content that links to this paragraph in an interim reporting period, it shall adopt the pending content as of the beginning of the annual reporting period that includes that interim reporting period.
    

**Transition method**

1.  d
    
    An entity shall apply the pending content that links to this paragraph on a retrospective basis through a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets on the balance sheet) as of the beginning of the annual reporting period of adoption, subject to the guidance in (e) through (i). The date of initial application shall be the beginning of the annual reporting period in which the entity first applies the pending content that links to this paragraph.
    
2.  e
    
    An entity shall recognize an [environmental credit](https://asc.understandingaccounting.org/glossary/e/#environmental-credit "(P) December 16, 2027; (N) December 16, 2028818-10-65-1An enforceable right that is acquired, internally generated, granted by a regulatory agency or its designee(s), or received in a nonreciprocal transfer that is not a grant from a regulator or its designee(s) that meets all of the following criteria:Lacks physical substance and is not a financial asset.Is represented to prevent, control, reduce, or remove emissions or other pollution.Is, or previously was, separately transferable in an exchange transaction. If an item is no longer separately transferable in an exchange transaction, an entity must be able to use that item to satisfy an environmental credit obligation to meet this criterion.Is not an income tax credit that may be used to settle an entity’s income tax liability, regardless of whether the entity has a tax liability or intends to use the credit for that purpose.An environmental credit that meets the above criteria may exist in a variety of forms, including (but not limited to) credits, certificates, allowances, and offsets.") as an asset at the date of initial application of the pending content that links to this paragraph if it is probable at that date that the environmental credit will be used to settle an [environmental credit obligation](https://asc.understandingaccounting.org/glossary/e/#environmental-credit-obligation "(P) December 16, 2027; (N) December 16, 2028818-10-65-1A regulatory compliance obligation arising from existing or enacted laws, statutes, or ordinances represented to prevent, control, reduce, or remove emissions or other pollution that may be settled with environmental credits. Obligations within the scope of Subtopic 410-30 are not environmental credit obligations."), transferred in an [exchange](https://asc.understandingaccounting.org/glossary/e/#exchange "An exchange (or exchange transaction) is a reciprocal transfer between two entities that results in one of the entities acquiring assets or services or satisfying liabilities by surrendering other assets or services or incurring other obligations.") transaction, or used in a [nonreciprocal transfer](https://asc.understandingaccounting.org/glossary/n/#nonreciprocal-transfer "Nonreciprocal transfer is a transfer of assets or services in one direction, either from an entity to its owners (whether or not in exchange for their ownership interests) or to another entity, or from owners or another entity to the entity. An entity's reacquisition of its outstanding stock is an example of a nonreciprocal transfer."). For all other environmental credits, an entity shall derecognize the carrying amount of those environmental credits at the date of initial application unless those environmental credits are within the scope of (g). In addition, at the date of initial application, an entity shall derecognize the carrying amount of an asset recognized for a nonrefundable deposit made to obtain an environmental credit if it is not probable that the environmental credit will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer.
    
3.  f
    
    An entity shall measure an environmental credit recognized as an asset at the date of initial application of the pending content that links to this paragraph in accordance with (e) as follows:
    
    1.  1
        
        An environmental credit that is classified as a [compliance environmental credit](https://asc.understandingaccounting.org/glossary/c/#compliance-environmental-credit "(P) December 16, 2027; (N) December 16, 2028818-10-65-1An environmental credit recognized as an asset in accordance with Topic 818 and probable of being used to settle an environmental credit obligation.") at the date of initial application of the pending content that links to this paragraph shall be measured using the entity’s carrying amount of that environmental credit existing at the date of initial application.
        
    2.  2
        
        An environmental credit that is classified as a [noncompliance environmental credit](https://asc.understandingaccounting.org/glossary/n/#noncompliance-environmental-credit "(P) December 16, 2027; (N) December 16, 2028818-10-65-1An environmental credit recognized as an asset in accordance with Topic 818 that is not a compliance environmental credit.") at the date of initial application of the pending content that links to this paragraph shall be measured at the lower of the entity’s carrying amount of the environmental credit existing at the date of initial application and the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of the environmental credit at the date of initial application.
        
    3.  3
        
        Notwithstanding the requirements of (f)(1) and (f)(2), an entity may make an entity-wide election to measure those environmental credits that were internally generated by the entity or received through a grant from a regulator or its designee(s) at the amount of the transaction costs incurred in accordance with paragraph [818-20-30-1](https://asc.understandingaccounting.org/asc/818/20/#818-20-30-1).
        
    4.  4
        
        Notwithstanding the requirements of (f)(2), an entity that elects an accounting policy to subsequently measure a class of eligible noncompliance environmental credits at fair value shall measure those environmental credits at fair value at the date of initial application of the pending content that links to this paragraph.
        
4.  g
    
    An entity shall continue to include the cost of environmental credits capitalized as part of another asset accounted for in accordance with another Topic (for example, Topic 330 on inventory) before the date of initial application of the pending content that links to this paragraph as part of the carrying amount of that other asset.
    
5.  h
    
    An entity shall apply the liability recognition and measurement requirements of Subtopic 818-30 on environmental credit obligations at the date of initial application of the pending content that links to this paragraph.
    
6.  i
    
    An entity shall apply the pending content in paragraphs
    
    [805-20-25-15B through 25-15D](https://asc.understandingaccounting.org/asc/805/20/#805-20-25-15B)
    
    and [805-20-30-32](https://asc.understandingaccounting.org/asc/805/20/#805-20-30-32) prospectively to transactions accounted for as business combinations occurring after the date of initial application of the pending content that links to this paragraph.
    

**Transition disclosures**

1.  j
    
    An entity shall provide the transition disclosures required by paragraph [250-10-50-1(a), (b)(3), and (c)](https://asc.understandingaccounting.org/asc/250/10/#250-10-50-1) and paragraph [250-10-50-2](https://asc.understandingaccounting.org/asc/250/10/#250-10-50-2). The transition disclosure required by paragraph [250-10-50-1(b)(3)](https://asc.understandingaccounting.org/asc/250/10/#250-10-50-1) shall be as of the beginning of the annual reporting period of adoption rather than as of the beginning of the earliest period presented.