An increasing number of entities in different sectors and industries aim to reduce global greenhouse-gas (GHG) emissions. While many are taking steps to reduce their own carbon emissions, these efforts may not be sufficient to achieve required or voluntary emission commitments.
Environmental credits can help entities accomplish their carbon emission reduction targets and goals. The popularity of such credits has grown; however, questions have emerged regarding the accounting and reporting for them since the treatment of environmental credits is not explicitly addressed in U.S. GAAP. The FASB therefore added to its agenda a project on this topic in May 2022. The SEC also included disclosure requirements related to environmental credits in its March 2022 proposed rule on climate-related disclosures.
This Accounting Spotlight examines environmental credits and certain current U.S. accounting practices, regulatory developments, and other accounting issues associated with them.