# ASC 818-10: Environmental Credits and Environmental Credit Obligations — Overall Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/818/10/) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:41:37.561Z to 2026-09-10T01:41:59.282Z Record version: sha256:122984a4c8dc399b425b396d3186bb264a19d3d7da1a5afdbbfb774e7ba3b4af Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 818-10: Environmental Credits and Environmental Credit Obligations — Overall ### Machine-generated study aids ```json { "summary": "ASC 818-10 is the Overall subtopic of the new Environmental Credits and Environmental Credit Obligations Topic (created by ASU 2026-02), which sets the accounting and reporting requirements for entities that acquire, internally generate, or receive environmental credits and for entities subject to regulatory compliance programs (e.g., cap-and-trade, renewable portfolio or fuel standards) that create environmental credit obligations. It applies to all environmental credits and environmental credit obligations, and items within its scope are excluded from derivatives accounting under Topic 815. The objective is to give investors useful information about the amount, timing, and uncertainty of cash flows from these transactions.", "key_points": [ "Topic 818 comprises three Subtopics — Overall (818-10), Environmental Credits (818-20), and Environmental Credit Obligations (818-30) (818-10-05-1).", "The guidance applies to all environmental credits and environmental credit obligations, which are used to settle environmental credit obligations, transferred in exchange transactions, used in nonreciprocal transfers, or used for voluntary purposes (818-10-05-3; 818-10-15-1).", "Items within the scope of Topic 818 are outside the scope of Topic 815 on derivatives and hedging per 815-10-15-82B (818-10-15-3).", "Separate transferability does not require an active market, and the length of time an item is transferable is irrelevant — an item transferable only momentarily before retirement still qualifies if the other criteria in the environmental credit definition are met (818-10-55-1).", "In applying the Topic, an entity considers the rights provided by the environmental credits it obtains and the terms and conditions of the regulatory compliance programs creating the obligations (818-10-10-1).", "Effective for public business entities in annual periods beginning after December 15, 2027, and for other entities after December 15, 2028, with early adoption permitted as of the beginning of the annual period (818-10-65-1(a)–(c)).", "Transition is retrospective through a cumulative-effect adjustment to opening retained earnings; a credit is recognized as an asset at the date of initial application only if it is probable it will be used to settle an obligation, transferred in an exchange, or used in a nonreciprocal transfer, with compliance credits carried at existing carrying amount and noncompliance credits at the lower of carrying amount and fair value (818-10-65-1(d)–(f))." ], "categories": [ "Recognition", "Subsequent measurement", "Transition and effective dates", "Financial instruments" ], "audience_level": "intermediate", "student_note": "This is brand-new guidance (ASU 2026-02) that finally gives carbon allowances and renewable energy credits their own model instead of forcing them into inventory, intangibles, or derivatives analogies. A common misunderstanding is assuming an active market or extended transferability is needed for an item to be an environmental credit — 818-10-55-1 says even momentary transferability before immediate retirement suffices.", "related_topics": [ "818-20", "818-30", "815-10", "805-20", "330", "250-10" ], "key_concepts": [ "environmental credit", "environmental credit obligation", "regulatory compliance program", "cap-and-trade", "compliance versus noncompliance environmental credits", "separately transferable", "nonreciprocal transfer", "cumulative-effect transition adjustment" ] } ``` Source downloaded (UTC): 2026-09-10T01:41:37.561Z to 2026-09-10T01:41:37.561Z Record version: sha256:913d74688d210d4433dff9b652bdf6867ba0f5796608de9e46ffc979eceae41f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 818-10-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/818/10/#00-status) SEC content: no ##### [818-10-00-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:41:37.561Z to 2026-09-10T01:41:37.561Z Record version: sha256:4a65135dc2bd1e94f60da8726b5a12a58b6cb1fcea553b51b3262c03741f8d7d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Active MarketAddedAccounting Standards Update No. 2026-0205/19/2026
Compliance Environmental CreditAddedAccounting Standards Update No. 2026-0205/19/2026
Environmental CreditAddedAccounting Standards Update No. 2026-0205/19/2026
Environmental Credit ObligationAddedAccounting Standards Update No. 2026-0205/19/2026
ExchangeAddedAccounting Standards Update No. 2026-0205/19/2026
Fair Value (2nd def.)AddedAccounting Standards Update No. 2026-0205/19/2026
Financial AssetAddedAccounting Standards Update No. 2026-0205/19/2026
Income TaxesAddedAccounting Standards Update No. 2026-0205/19/2026
Market ParticipantsAddedAccounting Standards Update No. 2026-0205/19/2026
Noncompliance Environmental CreditAddedAccounting Standards Update No. 2026-0205/19/2026
Nonreciprocal Transfer (1st def.)AddedAccounting Standards Update No. 2026-0205/19/2026
Orderly TransactionAddedAccounting Standards Update No. 2026-0205/19/2026
ProbableAddedAccounting Standards Update No. 2026-0205/19/2026
Related PartiesAddedAccounting Standards Update No. 2026-0205/19/2026
818-10-05-1 through 05-3
AddedAccounting Standards Update No. 2026-0205/19/2026
818-10-10-1AddedAccounting Standards Update No. 2026-0205/19/2026
818-10-15-1 through 15-3
AddedAccounting Standards Update No. 2026-0205/19/2026
818-10-55-1AddedAccounting Standards Update No. 2026-0205/19/2026
818-10-65-1AddedAccounting Standards Update No. 2026-0205/19/2026
Source downloaded (UTC): 2026-09-10T01:41:41.658Z to 2026-09-10T01:41:41.658Z Record version: sha256:830f23a8cce55122fa2c11e5830f47d7519af13065db60e68edf0eb081cdf391 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 818-10-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/818/10/#05-overview-and-background) SEC content: no ##### [818-10-05-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-05-1) Pending content: yes Source downloaded (UTC): 2026-09-10T01:41:41.658Z to 2026-09-10T01:41:41.658Z Record version: sha256:63aa14c62f9475a913b1bee8887f6bdec52e85b2bdfbb3665f36c3bf81b7b708 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [818-10-65-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-65-1)The Environmental Credits and Environmental Credit Obligations Topic includes the following Subtopics: 1. a Overall 2. b Environmental Credits 3. c Environmental Credit Obligations. ##### [818-10-05-2](https://asc.understandingaccounting.org/asc/818/10/#818-10-05-2) Pending content: yes Source downloaded (UTC): 2026-09-10T01:41:41.658Z to 2026-09-10T01:41:41.658Z Record version: sha256:002e0cb571848a7e6d38200af5f0e144b2041d63952ef919cea8a96312bc2c4b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [818-10-65-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-65-1)The Subtopics listed in paragraph [818-10-05-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-05-1) establish the financial accounting and reporting requirements for entities that obtain or generate 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.") or are subject to regulatory compliance programs (for example, cap-and-trade, renewable portfolio standards, or renewable fuel standards) that result in 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."). ##### [818-10-05-3](https://asc.understandingaccounting.org/asc/818/10/#818-10-05-3) Pending content: yes Source downloaded (UTC): 2026-09-10T01:41:41.658Z to 2026-09-10T01:41:41.658Z Record version: sha256:34ca77b3fd8fbc7a0577a791145cf1ee245f8106475f72ab6abd967cf5d9f8df Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [818-10-65-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-65-1)Entities engage in a variety of transactions that involve environmental credits. Environmental credits are acquired, internally generated, granted by a regulator or its designee(s), or received 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.") that is not a grant from a regulator or its designee(s). Entities use those environmental credits: 1. a To settle environmental credit obligations 2. b To transfer 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 3. c In a nonreciprocal transfer 4. d To meet voluntary environmental initiatives (referred to as using environmental credits for voluntary purposes). Source downloaded (UTC): 2026-09-10T01:41:44.782Z to 2026-09-10T01:41:44.782Z Record version: sha256:93a12eaf5e5ae96dde2ba422599ed3174baf988ec2cd1e7fe2e4ad752a38c0d8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 818-10-10: 10 Objectives [Read section](https://asc.understandingaccounting.org/asc/818/10/#10-objectives) SEC content: no ##### [818-10-10-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-10-1) Pending content: yes Source downloaded (UTC): 2026-09-10T01:41:44.782Z to 2026-09-10T01:41:44.782Z Record version: sha256:e05745cec1e3892ccf840a688fb6550f1f2b7b0a7b56a14b2b744403353a84e6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [818-10-65-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-65-1)This Topic specifies the financial accounting and reporting requirements for transactions and arrangements involving [environmental credits](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.") and [environmental credit obligations](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.") with the objective of providing investors with useful information about the amount, timing, and uncertainty of cash flows arising from those transactions. An entity should consider the rights provided by the environmental credits it obtains and the terms and conditions of the regulatory compliance programs that result in environmental credit obligations when applying this Topic. Source downloaded (UTC): 2026-09-10T01:41:47.182Z to 2026-09-10T01:41:47.182Z Record version: sha256:dd23ff9d19916c7b6b4a1b0baa3c57837be300f3023f2c01a6d4849ea9487cd0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 818-10-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/818/10/#15-scope-and-scope-exceptions) SEC content: no ##### [818-10-15-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-15-1) Pending content: yes Source downloaded (UTC): 2026-09-10T01:41:47.182Z to 2026-09-10T01:41:47.182Z Record version: sha256:55fb21f31b7dd6f8360c05c8f5b8e3fe49ed952c399521d301036d39aba77d1e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [818-10-65-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-65-1)The guidance in this Topic applies to all [environmental credits](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.") and [environmental credit obligations](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."). ##### [818-10-15-2](https://asc.understandingaccounting.org/asc/818/10/#818-10-15-2) Pending content: yes Source downloaded (UTC): 2026-09-10T01:41:47.182Z to 2026-09-10T01:41:47.182Z Record version: sha256:9b8c732d9c9559736067669b94882fdb62c0c4291d488cbc63be64c75111bcc8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [818-10-65-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-65-1)See paragraph [818-10-55-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-55-1) for implementation guidance on the application of the scope of this Topic. #### Other Considerations ##### [818-10-15-3](https://asc.understandingaccounting.org/asc/818/10/#818-10-15-3) Pending content: yes Source downloaded (UTC): 2026-09-10T01:41:47.182Z to 2026-09-10T01:41:47.182Z Record version: sha256:8fb45af7221a0917ff89ae0e8c79aa7217ebf21d446d8eb173ed21e2ee7a42ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [818-10-65-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-65-1)Environmental credits and environmental credit obligations that are within the scope of this Topic are outside the scope of Topic 815 on derivatives and hedging in accordance with paragraph [815-10-15-82B](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-82B). Source downloaded (UTC): 2026-09-10T01:41:54.465Z to 2026-09-10T01:41:54.465Z Record version: sha256:3687ae425efc3aee64f8750001f6ea6a127dc482f618a621dc302dc9271a81b4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 818-10-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/818/10/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [818-10-55-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-55-1) Pending content: yes Source downloaded (UTC): 2026-09-10T01:41:54.465Z to 2026-09-10T01:41:54.465Z Record version: sha256:b63eca9e12eb75294fb481c84a6f759b677339ac693f384052d07fdad3a2e9bc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [818-10-65-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-65-1)The existence of [active markets](https://asc.understandingaccounting.org/glossary/a/#active-market "A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.") is not a requirement when determining whether an item that may be 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.") is separately transferable 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. Additionally, the length of time that an item is transferable should not be considered for that purpose. In certain instances, an item may only be separately transferable momentarily because an entity retires the item immediately after obtaining it or instructs another party, such as a broker, to do so. That item would be subject to the provisions of this Topic if all other criteria in the environmental credit definition are met. Source downloaded (UTC): 2026-09-10T01:41:56.362Z to 2026-09-10T01:41:56.362Z Record version: sha256:639a7ed9e9a3f37c7e23c7c9851d22c19db10034ce449f509c8edf095b80354d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## 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, Environmental Credits and Environmental Credit Obligations (Topic 818) ##### [818-10-65-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-65-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:41:56.362Z to 2026-09-10T01:41:56.362Z Record version: sha256:b53c9d94625a0edfa00925078bdef71644191876d0eaf53456bb678dba3ec292 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [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 2027-12-16 2028-12-16 2028-12-16 2028-12-16 2028-12-16 2028-12-16 2028-12-16 2028-12-16 2028-12-16 2028-12-16 2028-12-16 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.