Future of UN climate dialogue threatened by budget shortfall

By Kate Abnett

BRUSSELS (Reuters) - The leading U.N. body on climate change is experiencing a severe budget shortfall, according to a Reuters analysis of documents from the world body - a funding gap that diplomats said could impair international climate dialogue.

The analysis found a budget hole of at least 57 million euros ($61.53 million) for 2024 - or nearly half of the funding needed for the U.N. Framework Convention on Climate Change (UNFCCC) secretariat to run annual climate negotiations among nearly 200 countries and to help implement any agreements that are made.

Budgets set out for the UNFCCC span two years. Its total 2024-2025 budget - the body's three main budget lines combined - is for 240 million euros, with about half of that expected to be allocated for this year.

The UNFCCC's member countries signed off on the budget and are expected to contribute the funds. The budget includes a core fund into which these countries are obligated to contribute, a supplementary fund drawing voluntary donations, and another voluntary fund to help diplomats from poorer countries attend U.N. climate negotiations.

While a handful of countries such as Japan and Germany have exceeded their payment obligations, others - notably the United States and China, the world's two biggest economies and the top emitters of greenhouse gases - have not yet met theirs. Contributions are due on Jan. 1 each year.

The secretariat, set up under the 1992 UNFCCC treaty, is the world's key body for coordinating international efforts to reduce climate-warming emissions and staging summits where countries can hold one another accountable. 

The budget shortfall has forced it to curtail activities – from reducing operating hours at its headquarters in Bonn, Germany, to cancelling regional "climate week" events this year. Those regional summits in countries such as Kenya and Malaysia last year raised billions of dollars in investment pledges from governments, investors and philanthropies for renewable energy, reforestation and other climate-focused projects.

"We continue to work relentlessly, but our resources are increasingly over-stretched," said a UNFCCC spokesperson, who asked not to be named, in response to the Reuters analysis.

Germany's climate envoy Jennifer Morgan urged countries to find a solution. 

"We need a climate secretariat that can perform its functions," Morgan told Reuters. "We're facing a massive crisis around the world."

RECORD PAYMENT DELAYS

As of this month, the UNFCCC had received 63 million euros ($68 million) in contributions for 2024. 

Officials in the United States and China told Reuters the countries would make their payments this year but did not specify when. State Department spokesperson Melvin Felix said the United States "still intends to provide a substantial contribution" to support the secretariat this year. The Chinese foreign ministry said China "will fulfil its obligations as always." 

As of October, the United States still owed 7.3 million euros to the UNFCCC's 2024 core budget, though it has contributed 2.5 million euros to its supplementary budget. China still owed 5.6 million euros to the core budget, though it has contributed 497,000 euros to the supplementary fund.

Even if both countries meet their obligations this year, it would not be enough to cover the hole in the UNFCCC's overall budget. 

Countries can be delayed in meeting the payment deadline for logistical reasons, for example if national budget cycles do not run on a calendar year or if payments need additional legislative approval. National elections also can cause delays. 

The Reuters analysis showed that, in past years, these issues typically were resolved before October - and that this year's delays are by far the worst in UNFCCC history, in terms of the amount of the overall budget still missing.     

The UNFCCC budget has more than doubled from its level of around 102 million euros spanning 2014 and 2015 amid a flurry of new global climate deals.

'GLOBAL PRESSURE'

Reuters spoke with more than a dozen diplomats involved in U.N. climate negotiations, as well as with UNFCCC representatives. Most spoke anonymously.

Eight of the diplomats expressed concern that the funding gap could undermine U.N. climate negotiations at a time when national governments are seeking trillions of dollars in climate investments. 

The diplomats listed examples, not previously reported, of how the cash crunch was already affecting UNFCCC operations, such as forcing the secretariat to extend employment contracts for only months at a time, or hampering its ability to fund the travel of representatives from poor nations to climate talks. 

The UNFCCC confirmed exclusively to Reuters that there is a $2.2 million (2.04 million euros) shortfall in the fund meant to pay for hundreds of diplomats to attend climate talks, including its COP29 summit next month in Baku, Azerbaijan. 

Egypt's lead climate negotiator Mohamed Nasr said that any weakening of the work done by the UNFCCC by failing to fund its budget would mean "creating space for weakening climate change action globally."

"This process is not only about negotiating the decisions, but also about the global pressure being put on the leaders to deliver," Nasr told Reuters.

As countries have voted over the years to approve more climate negotiations and events for the UNFCCC to run, they have steadily increased the UNFCCC's budget needs while resisting increases in their own funding obligations. As a result, the UNFCCC has come to rely increasingly on voluntary donations.

For example, the UNFCCC has been overseeing discussions to resolve rules for trading carbon credits - a goal outlined in the landmark 2015 Paris climate agreement and advanced at the COP26 U.N. climate summit in Glasgow in 2021. Another effort involves coordinating negotiations for a climate finance target that countries are due to approve at COP29. 

The split budget - combining obligatory and voluntary contributions by nations - allows some countries to channel UNFCCC payments through different government ministries or approval processes. Countries paying into the supplementary budget also can specify how they would like the money to be spent, though these requests are not made public and are not always binding. 

SIGNS OF STRAIN

Beyond the missing core budget funds, the UNFCCC's supplementary budget was also heavily under-funded. By Oct. 1, the secretariat had received just 41 million euros of its supplementary budget of 152.3 million euro for 2024-2025.

Money woes were evident in March, when the UNFCCC appealed for urgent funds from wealthy nations. Britain and Germany responded with a total of 1.5 million euros, which allowed the UNFCCC to support delegates at the June talks in Bonn.

"Much more pledged funding needs to be delivered to ensure all parties - especially the most vulnerable - are adequately represented right throughout the process this year," UNFCCC Executive Secretary Simon Stiell said in an update sent to governments in May.

With the UNFCCC's coffers in the red, COP29 host country Azerbaijan said last month it would help ensure that countries can attend the November summit. Azerbaijan pledged to cover travel and hotel fees for four delegates from each of the 40 small island developing states in the talks. 

Azerbaijan is a middle-income country whose own diplomats would be eligible for UNFCCC financial aid.

The UNFCCC also is trimming costs. It was able to hold the all-country talks in Bonn in June, but cancelled its usual video live stream to allow remote participation in what five diplomats involved in the talks called a cost-cutting move.

Cost-cutting efforts have shaved more than 20 million euros off the secretariat's supplementary budget needs for 2024-2025, a UNFCCC spokesperson said.

Some diplomats said that the cuts came at a cost for representation by poorer countries.

"There are often policy teams that are expecting to be able to watch the proceedings and provide backstopping remotely, and you lose that entirely," Daniel Lund, an adviser to Fiji in climate talks, said of the cancelled remote participation.

'LOGICAL AND HUMAN LIMITS'

When countries signed the UNFCCC treaty in 1992, they gave it a core task: to facilitate intergovernmental dialogue and cooperation in responding to climate change. Those talks have since yielded more global deals, like the Paris pact and last year's COP28 agreement on transitioning away from fossil fuels.

Stiell, the UNFCCC's head, has lamented that financial contributions from countries have lagged even as governments asked the body to take on more work.

"This approach has its logical and human limits," Stiell said in a speech in June.

A few countries have paid more than their share. Japan voluntarily paid 11 million euros beyond its core budget payment of 3 million euros. Germany gave 2.3 million euros for the core budget plus another 7.3 million euros for the supplementary fund.

One diplomat said the UNFCCC could strengthen its case for a bigger core budget by being more frugal - for example, by negotiating with COP summit hosts for lower hotel rates for UNFCCC-funded delegates. Others noted that the body has not yet fully implemented recommendations made by U.N. auditors covering areas such as staff selection and employee benefits. 

Asked about such criticisms, the UNFCCC spokesperson said the fact that nations are asking the body to do more work represents a "vote of confidence."

"However, when funding is not increased to match, and many existing funding pledges are not fulfilled on time, this itself causes major inefficiencies, as more time needs to be spent on stretching and re-allocating existing resources at a time when many staff are already working literally around the clock," the spokesperson said.

(1 euro = $1.0982)

($1 = 0.9102 euros)

(Reporting by Kate Abnett; Additional reporting by Katya Golubkova in Tokyo, Casey Hall in Shanghai, Valerie Volcovici in Washington, David Stanway in Singapore; Editing by Katy Daigle, Will Dunham and Lisa Shumaker)