Innovative financing for climate change: unpacking the potential of the financial transaction tax

Tackling climate change demands an unprecedented global financial commitment. For the past two decades, the Financial Transaction Tax (FTT) has been a recurring, yet largely unsuccessful, candidate to help fund this effort. The COP28 breathed new life into the discussion with the establishment of the Global Solidarity Levies Task Force, which identified the FTT as a promising instrument to finance climate action. Despite this renewed interest, the FTT remains a highly controversial tax. It faces strong opposition from the financial sector and has been widely criticized in some academic circles. This raises a critical question: Can such a contentious tax be the right solution for climate finance? This study delves into this central question. It examines past experiences with the tax and analyses the Global Solidarity Levies Task Force’s proposal. By exploring various design possibilities, it aims to assess the FTT’s potential in addressing the financial needs of climate action.