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ASC 818 Is Here – A New GAAP Model for Environmental Credits and Obligations

Kelen Camehl, CPA, MBA

At first glance, ASC 818 might look like a narrow standard that only applies to a handful of energy and industrial companies. In reality, any company that touches emissions programs, renewable energy initiatives, or voluntary net-zero commitments now has an accounting rulebook to follow, and for many teams, that rulebook simply didn’t exist until now.

Why FASB Stepped In

In May 2026, the FASB issued ASU 2026-02, creating a brand-new ASC 818 to govern the accounting for environmental credits and environmental credit obligations. Before this update, GAAP had no specific guidance in this area and companies were left applying other standards by analogy, borrowing from inventory guidance in some cases, intangible asset guidance in others, and contingency guidance in still others. The result was predictable. Similar transactions ended up with very different accounting outcomes depending on who was preparing the books.

ASC 818 attempts to fix that by giving preparers one consistent model to apply, whether they’re dealing with emissions allowances from a cap-and-trade program, renewable identification numbers, renewable energy certificates, or voluntary carbon offsets.

Two Sides of the Same Coin

The standard is really built around two connected questions.

When does an environmental credit qualify as an asset? Recognition hinges on expected future use, not on whether an active market actually exists. Specifically, a credit only needs to be probable of settling an obligation, being transferred in an exchange transaction, or being used in a nonreciprocal transfer. Get that determination wrong, and the accounting treatment flips entirely, from a capitalized asset to an immediate expense.
When does an environmental credit obligation exist, and how is it measured? This is the liability side of the equation. It’s the regulatory responsibility a company takes on simply by operating in a program that requires credits for compliance. ASC 818 draws a distinction between the funded portion of that liability, which is covered by credits the company already holds, and the unfunded portion, which isn’t. Each is measured differently.

Where the Real Work Is

The judgment calls in ASC 818 aren’t trivial. Companies will need to:

Assess probability of use at a portfolio level, not credit by credit, in many cases
Distinguish compliance credits from noncompliance credits
Work through different initial measurement models depending on whether a credit was purchased, internally generated, or granted by a regulator
Build out new annual disclosures covering accounting policy, significant estimates, and the funded and unfunded split

This isn’t a system upgrade or a data-mapping exercise like some recent FASB updates. It’s fundamentally a policy and judgment exercise, which means accounting, sustainability, and compliance teams need to be talking to each other well before implementation.

The Clock Is Ticking (Just Not Yet)

Public business entities must adopt ASU 2026-02 for annual periods beginning after December 15, 2027 (i.e., beginning in 2028 for a calendar year filer). Other entities get an extra year, with periods beginning after December 15, 2028. Early adoption is permitted though similar to many other ASUs. That may sound like plenty of runway, but standards that hinge on judgment and new disclosures tend to take longer to operationalize than preparers sometimes expect. Teams that start mapping their environmental credit activity now will have a much easier time once the effective date arrives.

Want to learn more about ASC 818?

Check out the 2-hour “Environmental Credits and Obligations – The New GAAP Rules”, by Kelen Camehl, CPA, MBA. His course walks through the recognition, measurement, presentation, and disclosure requirements ASC 818 in detail, with practical examples.

Kelen Camehl, CPA, MBA is a recognized author and reviewer of CPE courses and has authored over 230 courses (570+ CPE credit hours) covering a range of accounting, auditing, financial reporting, regulatory, and ethics topics. Kelen remained involved in CPA exam content development for nearly 10 years and authored more than a thousand multiple-choice questions for various sections of the CPA exam. He also serves as an Editorial Advisor for the AICPA’s “Journal of Accountancy”.