# ASC 818-20-40: Environmental Credits and Environmental Credit Obligations — Environmental Credits — 40 Derecognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/818/20/#40-derecognition) 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): 2026-09-10T01:42:22.130Z to 2026-09-10T01:42:22.130Z Record version: sha256:982812eccfe01c4b19699540bd3729923a8fb43aa2cc14e5d396839edf89927f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 818-20-40: 40 Derecognition [Read section](https://asc.understandingaccounting.org/asc/818/20/#40-derecognition) SEC content: no ##### [818-20-40-1](https://asc.understandingaccounting.org/asc/818/20/#818-20-40-1) Pending content: yes Source downloaded (UTC): 2026-09-10T01:42:22.130Z to 2026-09-10T01:42:22.130Z Record version: sha256:17c2a9d1e6f6012d0ce92c42e8d766c3c42f91ee5e5e5edbea1f63ccb5bc0892 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)An entity shall derecognize 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.") in accordance with Subtopic 610-20 on gains and losses from the derecognition of nonfinancial assets unless a scope exception from that Subtopic applies. For example, a nonfinancial asset in a [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with a [customer](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.") shall be derecognized in accordance with Topic 606 on revenue from contracts with customers. #### Asset Recognition Reassessment ##### [818-20-40-2](https://asc.understandingaccounting.org/asc/818/20/#818-20-40-2) Pending content: yes Source downloaded (UTC): 2026-09-10T01:42:22.130Z to 2026-09-10T01:42:22.130Z Record version: sha256:258b03ad6a67869eada7096114b7acbba85dd5a1c2724a9f64bb9d1784d0205d 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)At each reporting date, an entity shall reassess whether environmental credits shall continue to be recognized as assets in accordance with paragraph [818-20-25-1](https://asc.understandingaccounting.org/asc/818/20/#818-20-25-1). If an entity determines that it is no longer [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") that an 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."), the entity shall derecognize the environmental credit through earnings. ##### [818-20-40-3](https://asc.understandingaccounting.org/asc/818/20/#818-20-40-3) Pending content: yes Source downloaded (UTC): 2026-09-10T01:42:22.130Z to 2026-09-10T01:42:22.130Z Record version: sha256:3a6505eeea9fda51c008696c271e03307a711c3af811c16e9da3c06ce0f2607e 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)An entity is prohibited from recognizing an environmental credit as an asset if the entity previously determined that the environmental credit was not probable of being used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer. Therefore, an environmental credit previously derecognized or never recognized as an asset shall not subsequently be recognized as an asset.