POLICY COMMENTARY The incentive gap: LULUCF and the Kyoto mechanism before and after Durban DAVID ELLISON* , † , HANS PETERSSON † , MATTIAS LUNDBLAD ‡ and PER-ERIK WIKBERG † *Institute of World Economics, Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences, Budapest, HU, † Department of Forest Resource Management, Swedish University of Agricultural Sciences, Umea ˚, SE, ‡ Department of Soil and Environment, Swedish University of Agricultural Sciences, Uppsala, SE Abstract To-date, forest resource-based carbon accounting in land use, land use change and forestry (LULUCF) under the United Nations Framework Convention on Climate Change (UNFCCC), Kyoto Protocol (KP), European Union (EU) and national level emission reduction schemes considers only a fraction of its potential and fails to adequately mobilize the LULUCF sector for the successful stabilization of atmospheric greenhouse gas (GHG) concentrations. Recent modifications at the 2011 COP17 meetings in Durban have partially addressed this basic problem, but leave room for improvement. The presence of an Incentive Gap (IG) continues to justify reform of the LULUCF carbon accounting framework. Frequently neglected in the climate change mitigation and adapta- tion literature, carbon accounting practices ultimately define the nuts and bolts of what counts and which resources (forest, forest-based or other) are favored and utilized. For Annex I countries in the Kyoto Mecha- nism, the Incentive Gap under forest management (FM) is significantly large: some 75% or more of potential forestry-based carbon sequestration is not effectively incentivized or mobilized for climate change mitigation and adaptation (Ellison et al. 2011a). In this paper, we expand our analysis of the Incentive Gap to incorporate the changes agreed in Durban and encompass both a wider set of countries and a larger set of omitted carbon pools. For Annex I countries, based on the first 2 years of experience in the first Commitment Period (CP1) we estimate the IG in FM at approximately 88%. Though significantly reduced in CP2, the IG remains a problem. Thus our measure of missed opportunities under the Kyoto and UNFCCC framework – despite the changes in Durban – remains important. With the exception perhaps of increased energy efficiency, few sinks or sources of reduced emissions can be mobilized as effectively and efficiently as forests. Thus, we wonder at the sheer magnitude of this underutilized resource. Received 22 May 2012; revised version received 09 October 2012 and accepted 16 October 2012 Introduction Ellison et al. (2011a) identify a significant ‘Incentive Gap’ (IG) in the European Union (EU), Kyoto Protocol (KP), and United Nations Framework Convention on Climate Change (UNFCCC) carbon accounting and reporting frameworks for land use, land-use change, and forestry (LULUCF). Because the carbon stored in omitted carbon pools, managed forests, and harvested wood products (HWP) is not adequately accounted under current carbon accounting practices, strong incentives for increased carbon sequestration and the balanced and efficient use of forest resources are not in place. Accounting practices under the UNFCCC, KP, EU, and other national-level emission reduction schemes thus fail to adequately mobilize the LULUCF sector for climate change mitigation and adaptation. Moreover, each of these frameworks (UNFCCC, KP, EU, and national-level strategies) employs different report- ing and/or accounting conventions with significant and potentially adverse impacts on how forest resources are used (Ellison et al., 2011a: 1063). Recent LULUCF carbon accounting reforms at the 2011 COP17/CMP7 meetings in Durban have done little to change the basic dimensions of this problem. Although some significant progress has been made, the IG remains large. The consequences are significant: continued global warming and climate change threaten human life and that of other species on the planet. Rising temperatures and changing rainfall patterns are altering the most basic and fundamental conditions for human, animal, and plant life/survival. The International Energy Agency (IEA, 2011) recently argued little time remains for humankind to alter her behavior. If international-, regional-, and national-level strategies do not change Correspondence: David Ellison, email: ellisondl@gmail.com. © 2012 John Wiley & Sons Ltd 599 GCB Bioenergy (2013) 5, 599–622, doi: 10.1111/gcbb.12034