regulatory compliance program

Broad Transactions3

1. 818-10Overall818 Environmental Credits and Environmental Credit Obligations

   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.

2. 818-20Environmental Credits818 Environmental Credits and Environmental Credit Obligations

   ASC 818-20 governs the accounting for environmental credits (e.g., emissions allowances, carbon offsets, renewable energy certificates, RINs). An environmental credit is recognized as an asset only if it is probable it will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer; otherwise the cost is expensed as incurred and can never later be capitalized. Credits recognized as assets are classified as compliance credits (not remeasured) or noncompliance credits (tested for impairment each reporting date, with an optional fair value policy election by class for eligible credits).

3. 818-30Environmental Credit Obligations818 Environmental Credits and Environmental Credit Obligations

   ASC 818-30 governs when and how an entity recognizes, measures, presents, and discloses an environmental credit obligation — a liability to remit environmental credits (e.g., emissions allowances, renewable energy certificates) under a regulatory compliance program. A liability is recognized when events on or before the reporting date would require remitting credits assuming the reporting date were the end of the compliance period (818-30-25-1). The liability is split into a funded portion, measured at the carrying amount of compliance environmental credits on hand under Subtopic 818-20 costing methods (818-30-30-2), and an unfunded portion, measured at fair value of the needed credits unless the entity intends to settle in cash or with credits from an unconditional commitment or right (818-30-30-3).