Defining Issues | January 2022



FASB project on environmental credit programs

The accounting for carbon offsets or credits comes onto the FASB’s technical agenda.

Julie Santoro

Julie Santoro

Partner, Dept. of Professional Practice, KPMG US

+1 212-954-1086

Louise Santacruz

Louise Santacruz

Executive Director, Dept. of Professional Practice, KPMG US

+1 212-909-5090

As more companies enter into commitments to reduce their carbon emissions or invest in renewable energy, how to account for carbon offsets and credits is becoming more pressing. The complexity and variety of arrangements is giving rise to questions about how US GAAP applies, often involving more than one standard.

Source and applicability

Relevant dates

On May 25, 2022 the FASB added a project to its technical agenda on accounting for environmental credit programs. Discussions will continue in 2023.

Key impacts

The accounting for carbon offsets and credits is both an emerging issue and one that has been on the radar of standard-setters for decades. Emissions trading arrangements are not new, but for companies making net-zero or other emissions commitments, offsets and credits are often a key driver of their strategy. Where these arrangements were historically established to help companies comply with governmental or regulatory emissions mandates, they are now also a catalyst of growth and innovation, incentivizing companies to develop and implement the latest renewable technology. These growing and largely self-imposed strategic commitments have caused the related accounting issues to reemerge as a high priority.

Although several standard-setting projects have been attempted, there are currently no accounting requirements under US GAAP specific to carbon offsets or credits. Thus diversity in practice exists as companies seek to apply current accounting guidance to arrangements that are often complex and innovative.

In response to stakeholder feedback on its 2021 agenda consultation, in May 2022 the FASB agreed to add a project on accounting for environmental credits to its technical agenda.

Project scope

The FASB project will address the recognition, measurement, presentation and disclosure requirements for participants in compliance and voluntary programs that create environmental credits.

The preliminary scope of the project is credits that are legally enforceable and can be traded, which include:

  • Those created under compliance programs (e.g. cap and trade and baseline allowance programs)
  • Renewable energy credits/certificates
  • Renewable identification numbers
  • Carbon offset credits.

The project includes financial reporting requirements for nongovernmental entities that create credits and excludes tax credits, tax incentives and investments in renewable energy structures or entities.

The FASB acknowledged the importance of coordinating with the International Accounting Standards Board (IASB) to create globally aligned standards. Currently the IASB has a project on pollutant pricing mechanisms on its reserve list (i.e. inactive) due to capacity constraints.

Next steps

We expect the FASB to meet again on this project in early 2023.

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