# The Case for a Green Financial Transaction Tax

Gunther Capelle-Blancard

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CES

Centre d'Économie de la Sorbonne
UMR 8174

The Case for a Green Financial Transaction Tax

Gunther CAPELLE-BLANCARD

2025.12R

Version révisée
# The Case for a Green Financial Transaction Tax

## Gunther Capelle-Blancard*

First draft: June 2025 – Last draft: October 2025

**Abstract:** The aim of this note is to assess whether and how the Financial Transaction Tax (FTT) could be “greened” – that is, adapted or utilized to support environmental objectives and the financing of the transition to a more sustainable economy. While traditionally conceived as a regulatory tool, the FTT also holds unexploited potential as an instrument for climate finance and broader environmental alignment. This paper outlines five complementary arguments in favor of a green FTT: (1) its capacity to mobilize stable, international funding for global public goods; (2) its symbolic relevance in light of the financial sector’s contribution to social and environmental disruption; (3) its ability to modestly lengthen investment horizons and counteract excessive short-termism; (4) its potential to enhance public trust in finance by matching rhetoric about sustainable finance with contributions; and (5) its prospective use as a differentiated tool to reward environmentally responsible investors and issuers. The paper also includes a first quantitative assessment of potential revenues from a tiered green FTT, illustrating how such a mechanism could operationalize the principle of common but differentiated responsibilities and respective capabilities. While recognizing practical limitations (in terms of governance, data reliability, and risk of complexity) the paper concludes that a well-calibrated green FTT could be a simple yet effective lever in aligning financial markets with the ecological transition.

**Keywords:** Financial Transaction Tax, Securities Transaction Tax, Tobin Tax, Innovative Financing; Green Finance, Climate Finance.

JEL-Codes: G1; H2; Q5.

<footnote>* Université Paris 1 Panthéon-Sorbonne (Centre d'Economie de la Sorbonne) & Paris School of Business.
gunther.capelle-blancard@univ-paris1.fr</footnote>
Acknowledgment and Disclaimer

This report has been commissioned with the support of the Global Solidarity Levies Task Force (GSLTF), an intergovernmental initiative co-chaired by the governments of Barbados, France and Kenya that aims to develop solidarity levies as a mechanism to raise new financial resources to fight against climate change and support development and nature.

The report has been subject to review by the Expert Group of the GSLTF and partner organisations of the Task Force, as well as a selection of additional subject matter experts on relevant topics. A full list of the Expert Group and partner organisations can be found on the Task Force website. The author gratefully acknowledges the comments received in the review process, while retaining full responsibility for any errors, omissions, or interpretations contained in the final version. In particular, thanks to Sylvain Carré, Miguel Correira, Jézabel Couppey-Soubeyran, Ivar Ekeland, Jérôme Glachant, David Hillman, Avinash Persaud, Friederike Röder, Brice Roinsard and Bert Scholtens for their guidance and valuable inputs.

The work presented here constitutes an independent study undertaken by the author. The views, interpretations, conclusions, and recommendations expressed in this report are solely those of the author alone. They do not necessarily reflect the official positions, policies, or opinions of the Global Solidarity Levies Task Force, its secretariat, its members, its observers or its affiliated institutions and partner organisations.

© Gunther Capelle-Blancard, October 2025

This publication is copyright but the text may be used free of charge for the purposes of
advocacy, campaigning, education and research, provided that the source is acknowledged in
full.

<figure><img src="image_2.png" /></figure>

Global Solidarity
Levies Task Force
Introduction

The financial transaction tax (FTT) is a recurring subject of heated debate. Yet, the idea itself
is far from new. FTTs have existed for centuries and were a common features of most stock
exchanges throughout much of the 20th century.<fnref n="1" /> The past few decades have seen a strong
backlash against FTTs, driven largely by the rise of liberal economic ideology and the broader
deregulatory trends of the 1980s (Harvey, 2005). Still, around thirty countries across the world
maintain some form of FTT. Criticized from multiple fronts, the FTT came to be viewed as an
outdated instrument – at best, a utopian idea. Far from being obsolete, the FTT is arguably more
relevant than ever. The evolution of financial markets, the growing volumes of speculative
short-term trading, the persistent under-taxation of financial activities, and the needs for
innovating financings have strengthened the case for such a tax. The FTT is not an unattainable
ideal: existing national regimes demonstrate that it is perfectly feasible to implement and
enforce such taxes effectively.

The academic literature on FTTs is already quite extensive, including several comprehensive
reviews (Matheson, 2011; McCulloch and Pacillo, 2011; Burman et al., 2016; Capelle-
Blancard, 2024). Much of this work has focused on its impact on financial markets: how it
affects trading volumes, market liquidity, volatility, and market efficiency.<fnref n="2" /> A smaller but
growing body of research has also explored fiscal aspects of the FTT, including issues related
to tax collection and potential revenue generation (Capelle-Blancard and Persaud, 2025). This
paper does not aim to revisit these well-explored debates. Instead, it takes a complementary
perspective framed within the broader context of the ecological transition: the purpose is to
examine whether and how the FTT could be “greened”; that is, adapted to support
environmental objectives and help finance the transition to a more sustainable economy (see
also Correira, 2025).

The concept of a green FTT has emerged only recently. It is now increasingly discussed in
policy and advocacy circles, but it has not yet been the subject of systematic academic analysis.
In most cases, it is only briefly mentioned as one tool among many for greening the financial

<footnote n="1">¹ In the United Kingdom, a stamp duty on stock exchange transactions was introduced in 1694 and remains the oldest tax still in force in the country. Most former territories under British influence inherited this tax, which remains in place in jurisdictions such as Hong Kong, Singapore or South Africa. In France, the FTT dates back to 1893, implemented in response to a series of financial scandals, including the corruption case surrounding the construction of the Panama Canal. In Belgium and Switzerland, FTTs have been in place since 1913 and 1918, respectively. Even the United States applied a FTT for much of the 20th century, before repealing it in 1981 in the context of financial market deregulation.</footnote>

<footnote n="2">² Overall, the literature suggests that as long as markets remain sufficiently liquid and the tax rate stays relatively low – as is currently the case – the FTT has minimal effects on financial markets.</footnote>
system (see, for instance, Gabor, 2020; Thomä et Schönauer, 2021; Carré et al., 2022), but
without a detailed examination of its rational, its operational design, or practical implications.
To date, a comprehensive academic analysis that formally conceptualizes the green FTT is still
lacking.

In this paper, I argue that the FTT can be adapted to support environmental objectives and the financing of the transition to a more sustainable economy, in particular the fight against climate change<fnref n="3" />, and I develop five key reasons to support this claim.

1. **The FTT is an effective instrument for raising international funds to finance global public goods.** Revenues from an international (if not global) FTT would provide much-needed resources to support development and nature. These could include, but are not limited to, climate-related initiatives (mitigation and adaptation projects); revenues could also be directed toward biodiversity conservation, pollution control, and other social or environmental priorities depending on governance choices.

2. **Globalization, deregulation, and the financialization of the economy have contributed both to the hypertrophy of the financial sector and to environmental disruption.** It would therefore be both logical and fair for financial markets to contribute to addressing some of the problems to which they have historically contributed.

3. **By design, the FTT penalizes the most short-term oriented investors in favor of those with longer-term horizons.** Consequently, the FTT tends to lengthen investment horizons and thus encourages greater consideration of long-term challenges, including environmental sustainability.

4. **At a time when the banking and financial sector claims to embrace responsible and environmentally conscious approaches, a direct financial contribution would be timely.** Such a contribution could also help restore public trust in a sector that continues to suffer from widespread public skepticism.

5. **Finally, it is possible to apply differentiated tax rates based on the environmental footprint of issuers.** Yet, this would require reliable environmental performance indicators and accurate identification of firms.

In our view, the term green FTT refers to two complementary dimensions. First, the FTT can support the ecological transition through the revenues it generates, its potential to lengthen investment horizons, and its symbolic contribution to realigning finance with societal goals

<footnote n="3">³ While climate action provides the most immediate illustration, the same logic applies to broader ecological goals, including biodiversity protection and pollution reduction.</footnote>
(arguments 1–4). Second, a more specific design—featuring differentiated tax rates based on the environmental performance of issuers—would directly embed sustainability criteria into financial market transactions (argument 5). Both dimensions seek to connect financial market regulation with environmental objectives, albeit at different levels of ambition and implementation.

The following sections develop each of the five arguments introduced above. In addition, a dedicated section provides a quantitative assessment of the fiscal potential of a tiered design, illustrating how a green FTT could mobilize significant revenues.

I estimate potential revenues using a simple yet empirically grounded model calibrated on existing FTTs (notably in the UK and France). The model introduces a two-rate structure: A base rate of 0.5%, combined with a bonus-malus system that either penalizes non-green issuers or rewards green ones by up to ±0.5 percentage points. Under conservative assumptions regarding transaction volumes ($170 trillion globally), trading elasticity (–20%), and exemption rates (85%), global revenues could reach around $100 billion per year at the baseline rate. Differentiating tax rates according to firms’ environmental performance slightly alters this total, but creates meaningful fiscal and symbolic incentives for sustainability. In addition, disaggregating revenues by region shows that most proceeds would come from high-income countries, thus operationalizing the principle of “common but differentiated responsibilities and respective capabilities” (CBDR-RC).<fnref n="4" />

Ultimately, this paper argues that the FTT, long debated as a regulatory or fiscal tool, could also serve as a pragmatic lever for the ecological transition. The aim is to revisit the economic rationale and practical feasibility of the FTT in light of today’s challenges. By grounding the analysis in both theory and quantitative estimation, it demonstrates that a tiered, climate-aligned FTT is not only technically feasible but also consistent with the broader principles of fairness and shared responsibility that underpin sustainable finance.

<footnote n="4">⁴ While this paper takes a global perspective, it is important to note that global equity markets are dominated by the United States, which plays a central role in shaping both the feasibility and the potential revenue of any FTT. The implications of this dominance, and possible ways to address it will be further examined, as well as practical and political feasibility issues.</footnote>
# 1. The FTT as an Innovative Financing Mechanisms

The FTT has evolved from a primarily regulatory tool (e.g. Keynes, 1936; Stiglitz, 1989) into a potential instrument of innovative financing.<fnref n="5" /> Innovative financing mechanisms are broadly defined as financial tools or arrangements that mobilize new, predictable, and sustainable revenue streams for public goods and global challenges, particularly in areas where traditional funding sources have proven insufficient or volatile (Atkinson, 2004). Since the early 2000s, international bodies such as the Leading Group on Innovative Financing for Development<fnref n="6" /> and organizations like the World Bank and the United Nations Development Programme (UNDP) have identified the FTT as a promising tool for mobilizing resources beyond national budgets. In the context of innovative financing, attention was primarily focused on currency transactions (the so-called Currency Transaction Tax, or CTT), following Tobin's proposals (Tobin 1978). Nonetheless, there is no conceptual barrier to extending the tax base to equity transactions. Actually, existing FTTs today typically apply to equity trades (Stamp Duty-type taxes or Securities Transaction Tax, STTs), as in the UK, France, Italy, Spain, Switzerland, Hong Kong, South Korea, etc. The European Commission's 2011 proposal for a harmonized FTT among EU member states explicitly framed the tax as a means to contribute to the financing of public goods, including development aid and climate action (European Commission, 2011).

Thus, the nature of the FTT debate has evolved. With growing public deficits, fiscal considerations now outweigh regulatory concerns. The rationale for the FTT today is less about addressing speculative excesses or market instability, and increasingly about mobilizing new and stable sources of funding for sustainable development and the ecological transition. In this spirit, Esther Duflo recently highlighted the FTT as “*one of the possible avenues for financing*” international solidarity efforts (Duflo, 2024).

The FTT aligns with this approach by offering a way to capture revenue from financial market activities that are under-taxed relative to their scale and social impact (European Commission, 2011; Mooij and Nicodeme, 2014). Unlike conventional taxes on labor or consumption, which can have regressive effects or distort productive economic behavior, well-calibrated FTT target financial markets and short-term activities without significantly burdening long-term investment or financial stability.

<footnote n="5">⁵ While the FTT is not a new tax per se—it has existed in various forms for centuries—it is considered an “innovative financing mechanism” in the international development literature. The term “innovative” refers not to the instrument’s novelty but to its ability to generate new, stable, and additional revenue streams for global public goods beyond traditional budgetary sources.</footnote>

<footnote n="6">⁶ https://www.diplomatie.gouv.fr/en/french-foreign-policy/development-assistance/innovative-financing-for/</footnote>
Empirical studies indicate that even relatively low rates can generate significant revenue. For example, previous estimates for a modest FTT applied across major financial centers suggest potential revenues ranging from tens to hundreds of billions of dollars annually, depending on the breadth of the tax base and the inclusion of derivatives and currency transactions (Schulmeister et al., 2008). A more recent estimation based on equity transactions only, using conservative assumptions, reports that a worldwide FTT similar to the UK stamp duty could raise around $100 billion annually (Capelle-Blancard and Persaud, 2025) – an estimate further detailed in the last section of this paper. Notably, existing FTTs already generate approximately $17 billion per year, demonstrating the tax’s viability as a revenue source.

While these figures underscore the FTT’s potential as a fiscal instrument, they remain modest compared, for instance, to the scale of global climate finance needs (UNEP, 2023). According to the Global Landscape of Climate Finance 2024 (Climate Policy Initiative, 2024), meeting the Paris Agreement targets will require annual climate finance flows of approximately $7.2 trillion between 2024 and 2030. Current climate finance flows stood at roughly $1.46 trillion in 2022. Hence, while an FTT alone cannot bridge the entire financing gap, it represents a meaningful and underutilized tool that could contribute significantly to the diversified portfolio of funding mechanisms required for the ecological transition.

There are still problems to be addressed. These are not technical challenges but rather political ones. Currently, FTT revenues flow directly into the general budgets of states and are not earmarked for specific expenditures, particularly development aid. This reflects one of the fundamental principles governing public finance: the principle of budget universality, which includes the rule of non-earmarking. This rule prohibits allocating a particular revenue stream to fund a specific expenditure. The non-earmarking rule is one of the core principles of public budgeting. Nevertheless, several arguments support earmarking certain revenues. The first is transparency: earmarking enhances public understanding and can increase taxpayer acceptance.

Earmarking has strong representative value. Tying a tax to a clear and legitimate purpose, such as climate justice, can significantly strengthen public support and political acceptability (Kallbekken & Aasen, 2010; Baranzini & Carattini, 2017; Carattini et al., 2017; Klenert et al., 2018). Empirical research consistently shows that citizens are more likely to support environmental taxes when revenues are transparently linked to socially desirable outcomes, such as green investment, redistribution, or international solidarity, rather than absorbed into general budgets. This connection enhances both the perceived fairness and the political
legitimacy of the tax, turning what might otherwise be viewed as a punitive measure into a
visible contribution to the collective good.

Moreover, earmarking FTT revenues can help safeguard funding for development assistance.
For instance, in France, a portion of FTT revenues (initially 10%, later increased to 25% in
2016) is allocated to international aid. These funds complement revenues collected from the air
ticket tax and contribute to the *Fonds de solidarité pour le développement* (Solidarity
Development Fund), managed by the French Development Agency (AFD).

Another important challenge concerns who would administer the revenues generated by the tax.
Once again, this is primarily an issue of international cooperation rather than a genuine obstacle.
Several potential candidates could reasonably be considered for this role, including the World
Bank or the International Monetary Fund (IMF). These organizations have both the technical
expertise and the global reach necessary to manage and disburse funds efficiently, especially
for cross-border projects related to development aid or climate action.

Yet, establishing a new institution or a specific Green FTT Fund is not necessarily required. In
practice, revenues could equally be channelled through existing multilateral or national
mechanisms dedicated to climate and environmental finance, such as the Green Climate Fund,
the Adaptation Fund, or development agencies' green investment programs. This decentralized
approach would help avoid institutional duplication while allowing each participating country
to determine how to allocate its share, provided that transparent international reporting
standards are applied. Ultimately, what matters most is not the creation of a new body, but the
establishment of credible, transparent, and equitable governance arrangements that ensure the
effective and accountable use of proceeds in line with climate and sustainability objectives.

Ultimately, assessing the effectiveness of a green FTT requires clarifying what it is expected to
achieve in the broader context of the ecological transition. In this paper, effectiveness is
understood primarily in terms of the instrument's capacity to mobilize additional, stable, and
predictable fiscal resources for global public goods (particularly climate and environmental
action) while also embedding fairness and incentive dimensions. However, financial resources
alone are not the main barrier to ecological transformation. Structural issues such as the
shortage of bankable projects, institutional inertia, and the influence of vested interests often
represent more binding constraints. The green FTT cannot by itself overcome these political
and governance challenges, but it can help reshape the fiscal landscape by providing a new
source of solidarity-based funding and by reinforcing the legitimacy of the broader transition
effort.
## 2. The FTT as a Response to Financialization

The rise of financial markets is symptomatic of the broader process of financialization, defined as the increasing dominance of financial motives, financial markets, financial actors, and financial institutions across economies (Epstein, 2005). Financialization is key to understand the social and environmental crises. Although they may not be causally linked in a direct sense, they share common drivers: the globalization and the deregulation since the 1980s have reshaped economies and resource use patterns worldwide.

First, financialization has contributed to resource misallocation. The growing dominance of short-term profit motives and speculative trading tends to divert capital away from long-term, sustainable investments. Financial markets frequently underprice environmental risks, reinforcing investment patterns that favor high-return, carbon-intensive assets (Christophers, 2017; Scholtens, 2017).

Second, excessive liquidity and speculative capital flows have fostered economic instability. The proliferation of financial and monetary crises in emerging economies, often viewed as a byproduct of financial globalization, has repeatedly delayed poverty reduction efforts and disrupted sustainable development strategies (Prasad et al., 2007). For example, speculative capital flight has aggravated macroeconomic instability in many developing countries, increasing their vulnerability to both financial and environmental shocks.

Third, the financialization of commodity markets has amplified price volatility with direct environmental and social consequences (Tang and Xiong, 2012). The global food price surge of 2007–2008, during which staple grain prices spiked dramatically, was in part driven by speculative investments in agricultural derivatives. This volatility intensified land-use pressures and contributed to poverty and food insecurity in vulnerable regions (Wahl, 2008; Clapp and Helleiner, 2012).

Fourth, financial globalization has contributed to widening income inequalities. Capital flow liberalization has been associated with increasing income disparities, both in advanced and developing economies (IMF, 2021). Growing inequality undermines social cohesion and weakens political support for long-term environmental policies, further entrenching unsustainable economic practices.

Finally, Joseph Stiglitz also addresses a deeper issue: the disconnect between private gains and social value in modern financial markets. He argues that some of the innovations in financial
markets of the past few decades, including high-frequency trading, certain derivatives, and cross-border flows, "may not have been welfare enhancing" (Stiglitz, 2014). These innovations often rely on regulatory arbitrage, market power, or rent extraction, rather than real economic contribution; they have produced large private returns while generating limited or even negative welfare effects. He warns against the assumption that increased trading activity is socially beneficial, noting that the most active financial periods have coincided with slower growth, higher volatility, and increased inequality. Instead of banning these practices outright, Stiglitz suggests that tax instruments can be effective tools to discourage socially unproductive forms of trading, particularly excessively fast and speculative ones.

In sum, financialization has indirectly exacerbated environmental degradation by promoting short-termism, fostering instability and volatility, encouraging unsustainable resource exploitation, and contributing to social inequalities that hinder effective environmental transition.<fnref n="7" /> Beyond these tangible effects, the FTT carries important symbolic and political significance. As a redistributive instrument, it represents an effort to rebalance the distribution of wealth and power in a globalized economy increasingly dominated by financial actors. It also reasserts the political imperative to regulate finance and to restore democratic oversight over capital flows.

Ultimately, an FTT can contribute to realigning market incentives, correcting some of the distortions generated by excessive financialization, and ensuring that financial markets participate in addressing the crises they have helped to create. In doing so, it lays the groundwork for a more sustainable and accountable financial system.

### 3. Shifting Investment Horizons: The FTT's Role in Promoting Long-Term Investment

One of the foundational arguments for the FTT has always been its potential to discourage short-term, speculative trading, while minimally affecting long-term investment strategies.

Contrary to what its critics often claim, the FTT is not intended to penalize financial markets as a whole. The genuine issue is not that markets function poorly, but rather that they function

<footnote n="7">⁷ In this paper, financialisation and the lack of internalisation of environmental externalities are viewed as mutually reinforcing phenomena. Financialisation has amplified the tendency of markets to prioritise short-term returns, which in turn exacerbates the systematic underpricing of environmental risks and damages. Conversely, the absence of mechanisms to internalise these externalities strengthens short-termism by allowing environmentally harmful activities to remain more profitable than sustainable alternatives. A green FTT could help address both issues: first, by modestly shifting incentives towards longer-term investment horizons; second, by generating revenues earmarked for environmental objectives, thereby indirectly internalising part of the external costs.</footnote>
too well, or more specifically, too fast. Far from the caricature sometimes presented by
opponents, economists who support the FTT are not hostile to markets or investors. Quite the
opposite. As John Maynard Keynes acknowledged, “*the speculator with resources can provide
a useful, indeed almost an essential, service*” (Keynes, 1923). James Tobin considered that
markets had become “*excessively efficient*”, allowing rapid trading to dominate over long-term
economic considerations. Similarly, Lawrence Summers argued that the objective should not
be to hinder markets, but to moderate “*financial markets [that] work too well*” (Summers &
Summers, 1989). Joseph Stiglitz went even further: “*No institution in our capitalist society is
as venerable as the stock market. A turnover tax might seem, at first glance, to be an attack on
this foundation of our economy. I have tried to argue that such a tax is likely to increase the
overall efficiency of the economy and may actually enhance the efficiency with which the stock
market performs its most important roles.*” (Stiglitz, 1989).

Today, there is a broad consensus among economists – including some of the most influential
voices in the field – that modern financial markets generate excessive trading volumes. Werner
De Bondt and Richard Thaler described the high volume of trading as “*perhaps the most
embarrassing fact for the standard financial paradigm*” (De Bondt & Thaler, 1995). Similarly,
Andrei Shleifer argued that the question “*why do investors trade so much with each other?*”
should rank at the top of the research agenda in finance (Shleifer, 2000). In response to the 2008
global financial crisis, Paul Krugman advocated for the FTT asserting that “*there's
considerable evidence suggesting that too much trading is going on... it suggests that to the
extent that taxing financial transactions reduces the volume of wheeling and dealing, that would
be a good thing*” (Krugman, 2011). Even John Cochrane, a vocal opponent of the FTT,
acknowledged that “*the high volume of trading is the great unresolved problem of financial
economics*” (Cochrane, 2016). Finally, as David Easley and Maureen O’Hara emphasized, the
issue is not whether modern markets generate too much trading – “*in our view, it surely can*” –
but how to better understand and manage these excesses (Easley & O’Hara, 2016).

The goal, therefore, is not to prohibit trading, but to curb excessive short-term transactions in
order to promote longer investment horizons. This idea is simple, but not simplistic. Yet, this
simplicity may be the instrument’s greatest strength. As Tobin aptly noted, “*critics seemed to
miss what I regarded as the essential property of the transaction tax – the beauty part – that
this simple, one-parameter tax would automatically penalize short-horizon round trips, while
negligibly affecting the incentives for commodity trade and long-term capital investments. A
0.2 per cent tax on a round trip to another currency costs 48 per cent a year if transacted every
business day, 10 per cent if every week, 2.4 per cent if every month. But it is a trivial charge on commodity trade or long-term foreign investments.” (Tobin, 1996).

Encouraging longer investment horizons is not only beneficial for market stability; it is also essential for financing the social and ecological transition. In particular, institutional investors (mainly pension funds, sovereign wealth funds, and insurance companies) represent a major source of long-term financing to support sustainable growth (OECD, 2021). Several academic studies (Chava, 2014; Nofsinger et al., 2019; Starks et al., 2019; Bolton and Kacperczyk, 2020; Krueger et al., 2020; Gibson et al., 2021) provide empirical evidence that institutional investors are increasingly integrating environmental risks into their decision-making processes, particularly when operating with long-term horizons. Moreover, the presence of institutional investors appears to have a causal influence on the social responsibility of the companies in which they invest (Dyck et al., 2019). By modestly penalizing short-term trading and promoting longer holding periods<fnref n="8" />, the FTT can help reorient financial market behavior in a way that supports sustainable, forward-looking investment strategies, including infrastructure, clean energy projects, and climate adaptation initiatives.

Empirical research supports this theoretical expectation. Colliard and Hoffmann (2022) analyzed the effects of the French FTT, introduced in 2012, which applied to equity trades of large French companies. They found that the tax reduced trading volume, but they documented “a shift in security holdings from short-term to long-term investors.” Their findings confirm that a well-calibrated FTT can help shift market dynamics towards longer investment horizons, mitigating the distortions caused by speculative, high-frequency trading.

While promoting longer investment horizons is crucial, a significant portion of modern trading is driven by strategies that prioritize speed and volume over long-term value, most notably, high-frequency trading (HFT). In the contemporary financial landscape, HFT represents the most extreme manifestation of short-termism. HFT strategies exploit millisecond price differences across markets, generating vast volumes of trades with virtually no holding periods. While proponents argue that HFT adds liquidity, a growing body of academic research highlights its destabilizing effects. Kirilenko et al. (2017) found that HFT exacerbated volatility during the 2010 “Flash Crash” and contributed to market fragility. Budish et al. (2015) further argued that the race for ever-faster execution in HFT creates a socially wasteful “arms race” for

<footnote n="8">⁸ The magnitude of the impact on investment horizons is difficult to assess, but it depends on the applied rate and, crucially, on the design of tax collection. Current FTTs often exclude intraday transactions for administrative reasons, which limits their influence on high-frequency trading.</footnote>
speed, producing private profits at the expense of market efficiency and stability. The core
problem is that speed has overtaken information as the main source of market advantage,
undermining the fundamental role of markets in aggregating expectations about the future value
of assets. As Keynes noted as early as 1936: "*The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelope our future. The actual, private object of the most skilled investment to-day is (...) to outwit the crowd and to pass the bad, or depreciating, half-crown to the other fellow.*" (Keynes, 1936). Seventy-five years later, Andy
Haldane echoed this critique in remarkably similar terms: "*Being informed used to mean being smarter than the average bear about the path of future fundamentals (...). Today, it pays to be faster than the average bear, not smarter. To be uninformed is to be slow.*" (Haldane, 2012).
By imposing even a minimal cost on each transaction, the FTT disproportionately affects
trading strategies that rely on ultra-rapid turnover and razor-thin margins employed by HFT
firms, while having little impact on longer-term investors. The profits earned by HFT traders
can be likened to a tax levied at the expense of long-term investors, obtained through
overinvestment in technology (Biais et al., 2015), increased market opacity, and a growing
erosion of public trust in the fairness of financial markets.<fnref n="9" />

4. Rebuilding Public Trust: A Sector Contribution Aligned with Stated Values

Since Mark Carney’s influential 2015 speech on the “tragedy of the horizon,” the financial
sector has increasingly portrayed itself as a key player in addressing environmental transition,
in particular climate change. Major financial institutions have committed to aligning their
portfolios with net-zero targets, notably through initiatives, such as the Principles for
Responsible Investment (PRI) supported by the United Nations, or the Glasgow Financial
Alliance for Net Zero (GFANZ). In principle, finance being at the heart of the economy has a
critical role to play in directing capital towards companies and projects that will drive the
transition. Yet, there are growing concerns that this is more posture than substance. Studies
increasingly highlight the prevalence of greenwashing within the financial industry (Colaert
and De Houwer, 2025). In particular, many so-called ESG or sustainable investment funds fail

<footnote n="9">⁹ The magnitude of the effect depends directly on the rate applied, and crucially on the design of the collection system. Most existing FTTs implicitly exclude intraday transactions (see Capelle-Blancard and Persaud, 2025). The main reason is technical, as such exclusions facilitate tax collection. However, this approach is neither entirely fair nor particularly efficient in revenue terms. Current technological capabilities should allow for improved collection systems that capture these transactions. At rates similar to those currently applied in existing FTTs, the impact on HFT could be substantial, while the effect on longer-term investment horizons would likely remain marginal.</footnote>
to meet their objectives and lack transparency about their environmental impact (Joliet and Titova, 2018; Raghunandan and Rajgopal, 2020; Kim and Yoon, 2020, Michaely et al., 2020).

This disconnect between discourse and action contributes to a persistent lack of public trust in the financial sector (Guiso et al. 2008). After decades of scandals and repeated crises, this widespread skepticism is understandable. Even so-called sustainable finance has struggled to convince individual investors of its credibility and effectiveness. As warned by Luigi Zingales, without public support, the financial sector undermines its own legitimacy: “As finance academics, we should care deeply about the way the financial industry is perceived by society.” (Zingales, 2015).

One concrete way for the financial sector to demonstrate genuine commitment would be to support the implementation of a FTT dedicated to funding the ecological transition. A modest contribution would align rhetoric with action. It is therefore striking – if not outright paradoxical – that the financial sector, while presenting itself as a champion of sustainability, often opposes even minimal taxation on financial transactions when aimed at supporting development and nature. Accepting the FTT would be a credible gesture toward restoring public trust and fulfilling the promise of sustainable finance in a sector still struggling with credibility issues.

## 5. Towards a Green Differential: Linking Tax Rates to Environmental Performance

Designing and implementing a green FTT is not only about raising new public revenues, internalizing negative externalities, extending investment horizons, or rebuilding public trust in financial markets. It also introduces – perhaps most innovatively – a mechanism to differentiate among issuers based on their environmental responsibility. This would mark a significant evolution in the purpose and design of the FTT: not only as a tool to shape investor behavior, but also to influence corporate behavior through capital markets.

It should be acknowledged that the incentive effect of a green FTT on corporate behavior would likely be modest in practice. The underlying idea is that a higher transaction cost could be reflected in firms’ cost of capital by making their shares less attractive to investors and thus raising the required return. While theoretical models suggest that secondary market frictions can indeed affect primary market financing conditions (Amihud et al., 2005), there is little robust empirical evidence to confirm that existing FTTs have materially impacted issuers’ cost of capital. In other words, while the differentiation of tax rates sends a useful signal and aligns market incentives at the margin, its real impact on corporate financing conditions should not be
overstated. The primary value of such differentiation may lie more in its emblematic and political value, and reinforcing public acceptance, rather than in directly altering corporate cost structures.

In practice, several approaches can be envisaged to implement an environmental differentiation within the FTT framework. The first consists in excluding non-green companies from existing exemptions. Today, most FTT regimes include numerous exemptions: for instance, transactions related to initial public offerings (IPOs) or primary market capital increases; trades involving small-cap firms (such as companies with a market capitalization below €1 billion in France); start-ups listed on recognized growth markets (as in the UK); transactions made under employee share ownership schemes; and market-making activities. Under this proposal, only companies meeting specific social and environmental criteria would benefit from preferential treatment, while environmentally harmful companies would be subject to the full tax.

A second, more explicit approach would be to apply differentiated tax rates based on issuers' environmental performance. The FTT could be levied universally, but with a lower rate for green issuers and/or a higher rate for non-green ones. This would send a clear price signal to financial markets, rewarding pro-social investors and companies with strong sustainability credentials, while penalizing those contributing most to environmental degradation, much like a carbon tax functions in the real economy. One might even envision setting the FTT rate at zero for green firms. However, this would come at the cost of sacrificing one of the core benefits of the FTT: its capacity to modestly extend investment horizons and discourage excessive short-term trading. Striking the right balance between fiscal incentive and regulatory function would therefore be key to designing an effective green FTT.

While appealing in principle, the idea of applying differentiated tax rates according to environmental performance raises some practical and conceptual challenges. The first and most immediate issue is data availability and reliability. Implementing a tiered tax regime requires a robust, consistent, and verifiable system for assessing firms' environmental impact—something that current ESG ratings and corporate disclosures still fail to deliver with sufficient precision and comparability (see for instance, Berg et al. 2022). The heterogeneity of methodologies used by different rating agencies often leads to contradictory assessments of the same firm, undermining the credibility of any tax differentiation based on such indicators. Moreover, the risk of greenwashing is well known, as firms may seek to benefit from favorable classifications without undertaking meaningful environmental changes.
Beyond these risks, there is also a danger that adding layers of complexity to the FTT (though well-intentioned) could undermine one of its core strengths: its simplicity. A major appeal of the FTT lies in its straightforward structure, which allows for low implementation and compliance costs. Introducing differentiated rates would entail additional monitoring and verification mechanisms, potentially increasing legal uncertainty and implementation costs. As James Tobin himself cautioned, this would risk sacrificing what he considered the “*as the essential property of the transaction tax –the beauty part*” (Tobin, 1996).

That said, in practice, most existing FTT regimes already apply differentiated rates in a straightforward and efficient manner. Exemptions are typically designed to protect small-cap firms; in particular, shares listed on the Alternative Investment Market in the United Kingdom are exempt from stamp duty, and in France and Italy, only transactions involving companies above a certain market capitalisation threshold are taxed. In other words, smaller firms are effectively subject to a zero rate. These differentiated regimes are implemented with minimal administrative complexity. In France, for instance, the list of companies subject to the tax is published annually on December 1st and applies from January 1st of the following year. Maintaining two lists, each associated with a different rate, is operationally manageable and cost-effective. Applying a similar model based on environmental performance, rather than market size, would require only a modest adaptation of these existing practices.

# 6. Fiscal Potential of a Tiered Green FTT

How much revenue could a green FTT realistically generate, based on conservative assumptions and using the same type of mechanisms already in place today that have proven to be effective in practice?

## 6.1. The Baseline

Currently, existing FTTs generate approximately $17 billion annually worldwide, without any environmental differentiation. Rates vary across jurisdictions, typically ranging between 0.1% and 0.5%, though in some cases they can reach 1% or more. According to prior estimates, a broader application of existing FTTs on equity transactions based on the prevailing 0.5% rate used in the UK could yield up to $100 billion per year globally (Capelle-Blancard and Persaud, 2025).
This estimate relies on conservative assumptions: (H1) a total global equity transaction volume of $170 trillion (based on data compiled from the World Bank and Refinitiv); (H2) a tax rate of 0.5%, which is the rate applied in the UK; (H3) a tax design similar to the UK stamp duty or the French and Italian FTTs; (H4) an estimated 20% decline in trading volume due to the introduction of the tax (assumed to apply uniformly, even in countries that already levy an FTT); and (H5) an exemption rate of 85%. Importantly, this scenario considers only the taxation of actual transfers of ownership, thereby excluding intra-day trading. This design feature enhances enforceability, as taxes are levied upon legal settlement, where ownership is formally transferred.

## 6.2 Tiered FTT Specific Assumptions

In addition to these baseline assumptions, several additional elements must be considered to model a tiered FTT.<fnref n="10" /> The overall revenue impact of introducing differentiated tax rates depends on: (H6) the design of the bonus-malus system; (H7) the classification of issuers – that is, the criteria and thresholds used to define green and non-green firms; and (H8) how investors adjust their trading behavior in response to the new incentive structure. Let us now explore each of these factors in turn.

Let us first assume a simple two-rate structure. This offers simplicity, and ease of implementation, though more complex designs with additional rates could also be envisaged. In this framework, one can either maintain a base rate of 0.5% and apply a penalty (surcharge) for non-green issuers, grant a preferential rate (a “greenium”) for green issuers, or combine both approaches. The level of this bonus-malus system can be adjusted according to revenue objectives. In practice, there are many possible combinations; this is ultimately a matter of policy calibration.

The second key parameter in estimating potential revenue outcomes is the relative share of green and non-green firms within the taxable universe. Once again, this is primarily a political choice. As discussed in the previous section, assessing the environmental footprint of issuers is challenging. But here, the issue is compounded by the need to define thresholds: should we favor the top quartile, third, or half of the most “virtuous” companies? Or, alternatively, penalize the most polluting quarter, third, or half? There is no clear economic rationale to guide

<footnote n="10">¹⁰ The term “tiered FTT” refers, here, to a structure with two differentiated tax rates (for instance, a lower rate for green issuers and a higher rate for non-green ones) rather than to a progressive schedule.</footnote>
this decision, which is why, in the simulation exercise that follows, I present a range of scenarios. It is also worth noting that the choice of thresholds is closely linked to the chosen tax rates. Indeed, similar outcomes can be achieved either by applying a larger penalty to a smaller group of non-green firms (emphasizing the price effect) or a smaller penalty to a larger number of companies (emphasizing the volume effect); both options can yield comparable fiscal and environmental results.

By way of illustration, major ESG indices apply varying levels of selectivity: from 28% of the reference universe for the MSCI World SRI Index (377 companies out of 1,353 constituents – MSCI World SRI Index Factsheet, May 2025) to roughly 44% inclusion for the FTSE4Good All-World Index (1,850 companies out of a reference universe of 4,225 companies – FTSE Russell Factsheet, May 2025). Conversely, if one considers the European Union's green taxonomy, it appears that only about 10% to 20% of companies are currently aligned with its criteria (Morningstar Sustainalytics, Oct. 2024); albeit, this percentage is expected to increase gradually as corporate practices improve and reporting becomes more robust.

## 6.3 The Model

To estimate potential revenues, I follow the methodology proposed by Capelle-Blancard and Persaud (2025). This approach, rather than relying on a purely theoretical model, infers most of the key parameters from actual FTT implementations, where reliable data on tax revenues and total transaction volumes are available. These empirical benchmarks offer a practical foundation for calibration. In particular, I use the FTT designs in the UK and France as primary references.

In the case of a *single-rate* structure, the tax revenue for country *i* and year *t* can be expressed as follows:

$$R_{i,t} = \tau_{i,t} \times T_{i,t} (1 - \varepsilon_{i,t}) (1 - z_{i,t}) \quad (1)$$

where $\tau_{i,t}$ is the tax rate, $T_{i,t}$ is the total value of transactions, $\varepsilon_{i,t}$ is the decrease of volumes in percent and $z_{i,t}$ represents the share of exemptions and leakages in total transactions volume.

For a *two-rate* structure, this simply involves computing a weighted sum of revenues from each category of issuers. The total tax revenue can be expressed as follows:

$$R_{i,t} = [\tau_{i,t}^{G} \times s_{i,t}^{G} + \tau_{i,t}^{NG} \times s_{i,t}^{NG}] \times T_{i,t} (1 - \varepsilon_{i,t}) (1 - z_{i,t}) \quad (2)$$
where $\tau_{i,t}^G$ and $\tau_{i,t}^{NG}$ are the tax rates applied to green and non-green issuers, respectively; $s_{i,t}^G$ and $s_{i,t}^{NG}$ represent the respective shares of transactions involving green and non-green issuers (with $s_{i,t}^G + s_{i,t}^{NG} = 1$); $T_{i,t}$, $\varepsilon_{i,t}$, and $z_{i,t}$ are defined as in the single-rate model.

Depending on whether one chooses to implement a penalty for non-green firms or a preferential rate for green firms ($\Delta\tau_{i,t} = \tau_{i,t}^{NG} - \tau_{i,t}^G$), the expression can be simplified accordingly:

* Penalty approach:

$$R_{i,t} = [\tau_{i,t} + \Delta\tau_{i,t} \times s_{i,t}^{NG}] \times T_{i,t}(1-\varepsilon_{i,t})(1-z_{i,t}) \quad (3a)$$

* Greenium approach:

$$R_{i,t} = [\tau_{i,t} - \Delta\tau_{i,t} \times s_{i,t}^{G}] \times T_{i,t}(1-\varepsilon_{i,t})(1-z_{i,t}) \quad (3b)$$

## 6.4 The Calibration

I adopt constant parameters, based on best available empirical estimates in the literature: $\varepsilon = \varepsilon_{\forall i, \forall t} = 20\%$ and $z = z_{\forall i, \forall t} = 85\%$. Finally, I assume a basic rate $\tau = \tau_{\forall i, \forall t} = 0.5\%$, consistent with the current rate of the UK Stamp Duty Reserve Tax.

The non-green penalty and the greenium vary from $\Delta\tau = \Delta\tau_{i,t} = 0\%$ to $0.5\%$, in increments of $0.1\%$. In addition, for the share of green firms, a wide range is considered: varying from $s^G = s_{\forall i, \forall t}^G = 10\%$ to $80\%$, with particular attention to the 20% and 40% cases. The way this share is parameterized warrant two clarifications. First, these percentages refer to the share of total transaction volume. While most available data on green and non-green firms typically relate to market capitalization, I make the simplifying assumption that trading activity is proportional to firm size. In other words, it is assumed that green and non-green firms exhibit, on average, similar turnover ratios, which is again a conservative hypothesis. Second, the two-rate structure introduces a (modest) incentive for issuers to green their activities in order to benefit from a relatively lower tax rate. However, since such adjustments are likely to occur gradually, the share of green and non-green firms is exogenous and fixed in our calibration.

This study focuses primarily on estimating potential revenues at the global level, with a further breakdown by major geographic and economic zones. The underlying data on stock market transactions are drawn from the estimates provided by Capelle-Blancard and Persaud (2025), based on data from the World Bank and Refinitiv.
## 6.5 The Results

Table 1 provides estimated global revenues from a tiered FTT under different parameter scenarios. It reports the revenues that could be generated worldwide, considering two alternative assumptions regarding the share of green firms in the taxable universe: 20% (Panel A) and 40% (Panel B). The penalty applied to non-green firms and the preferential rate (greenium) granted to green firms vary simultaneously from 0% to 0.5%, relative to the baseline rate of 0.5%. As a result, the tax rate for a specific firm can range from a minimum of 0% to a maximum of 1%. At the global level, I assume a total volume of equity transactions of $170 trillion (corresponding to the estimated amount for 2022). All results are expressed on an annual basis and in billions of US dollars.

If neither a penalty nor a preferential rate is applied, the amount that could be raised through a global FTT, implemented under the same conditions as the UK stamp duty, would exceed $100 billion annually (first cell, top left of the table, Panel A or B). According to the OECD (2024), developed countries provided and mobilised a total of $115.9 billion in climate finance for developing countries in 2022, higher than the annual $100 billion goal for the first time. This achievement, while notable, occurred two years later than the original 2020 target year. Hence, a globally implemented FTT, calibrated with a base rate of 0.5%, could potentially double the current volume of international climate finance flows. Such a mechanism would provide a stable and predictable source of funding, complementing existing efforts and helping to bridge the persistent financing gap in addressing climate change challenges.

Adjusting the tax rate to penalize non-green firms and/or favor green firms naturally leads to higher or lower overall revenues. In the table, green-shaded cells indicate an increase in revenues, while brown-shaded cells indicate a decrease compared to the single-rate structure; variations greater than ±25% and ±50% are highlighted in a darker shade to reflect more significant changes. It should be emphasized that this is not intended as a precise forecast, but rather as an illustrative exercise to highlight the wide range of possible policy combinations.

For example, assuming that green firms account for 20% of total transaction volumes, it is possible to maintain overall revenue close to $100 billion by applying a rate of 0.6% to non-green firms and only 0.1% to green firms (Panel A, penalty = +0.1% and greenium = -0.1%). If one adopts a broader definition of green firms, assuming they represent 40% of transactions, the $100 billion target can be reached with a smaller rate differential between the two
categories: for instance, by applying a 0.2% rate to the least polluting firms and a 0.7% rate to the other firms (Panel B, penalty = +0.2% and greenium = -0.2%).

It is also possible to significantly increase revenues by applying a higher penalty rate, particularly when the share of non-green firms is high. For example, revenues easily reach $150 billion with a penalty of 0.3%, i.e. a 0.8% total rate for non-green firms (Panel A, penalty = +0.3% and greenium = 0). The adjacent cells (Panel A, penalty = +0.3% and greenium = -0.1% or -0.2%) show similar magnitudes.

<caption>Table 1. Estimated Revenues from a Tiered FTT</caption>

The estimates are based on a two-rate structure (baseline rate of 0.5%) and varying levels of greenium or penalty (from 0% to 0.5%, applied as a subtraction from or addition to the baseline). The share of green firms in the taxable universe is set at 20% in Panel A and 40% in Panel B. The model applies conservative assumptions: a transaction elasticity of -20% and an exemption/leakage rate of 85%. The global volume of equity transactions is estimated at $170 trillion, based on data from the World Bank and Refinitiv. Figures are reported in billions of US dollars. Cell colors indicate the relative change compared to a single-rate structure: dark green for increases above 50%; green for increases between 25% and 50%; light green for increases between 0% and 25%; light brown for decreases between 0% and 25%; brown for decreases greater than 25%.

<table><caption>Panel A. Share of Green Firms: 20%</caption><thead><tr><th></th><th colspan="6">Penalty</th></tr><tr><th>Greenium</th><th>0%</th><th>+0.1%</th><th>+0.2%</th><th>+0.3%</th><th>+0.4%</th><th>+0.5%</th></tr></thead><tbody><tr><th>0.0%</th><td>102</td><td>118</td><td>135</td><td>151</td><td>167</td><td>184</td></tr><tr><th>-0.1%</th><td>98</td><td>114</td><td>131</td><td>147</td><td>163</td><td>180</td></tr><tr><th>-0.2%</th><td>94</td><td>110</td><td>126</td><td>143</td><td>159</td><td>175</td></tr><tr><th>-0.3%</th><td>90</td><td>106</td><td>122</td><td>139</td><td>155</td><td>171</td></tr><tr><th>-0.4%</th><td>86</td><td>102</td><td>118</td><td>135</td><td>151</td><td>167</td></tr><tr><th>-0.5%</th><td>82</td><td>98</td><td>114</td><td>131</td><td>147</td><td>163</td></tr></tbody></table>

<table><caption>Panel B. Share of Green Firms: 40%</caption><thead><tr><th></th><th colspan="6">Penalty</th></tr><tr><th>Greenium</th><th>0%</th><th>+0.1%</th><th>+0.2%</th><th>+0.3%</th><th>+0.4%</th><th>+0.5%</th></tr></thead><tbody><tr><th>0.0%</th><td>102</td><td>114</td><td>126</td><td>139</td><td>151</td><td>163</td></tr><tr><th>-0.1%</th><td>94</td><td>106</td><td>118</td><td>131</td><td>143</td><td>155</td></tr><tr><th>-0.2%</th><td>86</td><td>98</td><td>110</td><td>122</td><td>135</td><td>147</td></tr><tr><th>-0.3%</th><td>78</td><td>90</td><td>102</td><td>114</td><td>126</td><td>139</td></tr><tr><th>-0.4%</th><td>69</td><td>82</td><td>94</td><td>106</td><td>118</td><td>131</td></tr><tr><th>-0.5%</th><td>61</td><td>73</td><td>86</td><td>98</td><td>110</td><td>122</td></tr></tbody></table>
Conversely, granting a preferential rate to green firms has only a modest fiscal cost. Even in the extreme case of a full exemption (greenium = -0.5 percent), total revenues remain around $82 billion (Panel A) or $61 billion (Panel B), depending on the share of green firms.

In the assessment of the tax revenue, more than the specific tax rates themselves, a key variable is the share of firms classified as green or not. To better illustrate the impact of this factor on revenues, Figure 1 reports estimated tax revenues as the penalty or premium varies, across a broad range of market shares, from 10% to 80% (see also Table A in Appendix). Mechanically, revenues increase with both the penalty rate and the share of non-green firms. Revenues can nearly double compared to the baseline in the most stringent scenarios, or collapse if the definition of green firms is overly lax.

<caption>**Figure 1. Sensibility of the Revenue to the Share of Green Firms**</caption>

The estimates are based on a two-rate structure (baseline rate of 0.5%) and varying levels of greenium or penalty (from 0% to 0.5%, applied as a subtraction from or addition to the baseline). The share of green firms in the taxable universe varies from 10% to 80%. The model applies conservative assumptions: A transaction elasticity of -20% and an exemption/leakage rate of 85%. The global volume of equity transactions is estimated at $170 trillion, based on data from the World Bank and Refinitiv.

<figure><img src="image_3.png" /></figure>
## 6.6 The principle of common but differentiated responsibilities and respective capabilities

It is also useful to disaggregate potential FTT revenues by geographic and economic zones. This breakdown is particularly relevant in light of the principle of common but differentiated responsibilities and respective capabilities (CBDR-RC), enshrined in the 1992 United Nations Framework Convention on Climate Change. The FTT offers a unique opportunity to operationalize this principle. Because the tax is levied on equity transactions, the fiscal contribution of each country automatically reflects the size, depth, and liquidity of its financial markets, which correlate with national wealth and historical carbon footprints. In other words, this is a progressive mechanism that channels greater contributions from those best able to pay, without imposing artificial or arbitrary quotas.

Table 2 presents potential revenue estimates for a set of alternative groupings: first by broad geographic regions (North America, East Asia & Pacific, Europe & Central Asia, Rest of the World); then by income level (High income; Upper-middle income; Lower-middle & Low income); and finally by key political groupings relevant to international climate finance negotiations (European Union, G7, BRICS, G20, OECD). This multi-dimensional decomposition is intended to inform reflections on international burden-sharing and to illustrate the considerable financial potential that exists in jurisdictions with large and liquid equity markets. I maintain the total global volume of equity transactions at $170 trillion. For each geographic and economic zone, this total is apportioned based on the zone's respective share of global stock market transactions.

For this breakdown, I should make an additional assumption: (H9) the share of green and non-green firms is assumed to be the same across all geographic and economic zones (mainly due to the lack of harmonized granular data). To keep the presentation manageable, I report results based on two alternative assumptions for the share of green firms (20% and 40%) and three two-rate structures: (i) a penalty of +0.2% for non-green firms, with the baseline rate (0.5%) maintained for green firms; (ii) a greenium of -0.2% for green firms, with the baseline rate maintained for non-green firms; and (iii) a combined structure with a penalty of +0.1% and a greenium of -0.1%.

The breakdown highlights that the bulk of potential revenues would originate from high-income countries, particularly North America (52% of trading activity) and Europe & Central Asia (15%), as well as advanced markets in East Asia & Pacific (29%), collectively accounting for more than 90% of global equity trading. For instance, under a penalty-based scenario (+0.2% penalty), North America alone could generate between $66 and 71 billion annually, while
Europe & Central Asia could contribute $20 to 21 billion. In contrast, lower middle and low-income countries would contribute only marginal amounts ($1 to 2 billion), reflecting their smaller financial markets, which aligns with the CBDR-RC principle by ensuring that the fiscal burden is borne primarily by countries with the greatest capacity.

In aggregate terms, advanced economies (OECD, G7) would bear the majority of the fiscal effort. For instance, G20 countries alone could mobilize between $81 and 128 billion, while OECD members would contribute between $64 and 101 billion depending on the scenario. Importantly, BRICS countries would contribute at an intermediate level ($18 to 29 billion), reflecting their transitional role in the global economy.

<caption>**Table 2. Revenue from a Tiered FTT breakdown by zones**</caption>

The estimates are based on a two-rate structure (baseline rate of 0.5%). The share of green firms in the taxable universe is set at either 20% or 40%, assumed to be uniform across all zones. The model applies conservative assumptions: a transaction elasticity of -20% and an exemption/leakage rate of 85%. Estimates are based on a total global volume of $170 trillion in equity transactions, apportioned across zones according to each zone's share of global trading activity (in parenthesis). Three rate structures are considered: (i) penalty +0.2%; (ii) greenium - 0.2%; (iii) combined penalty/greenium ±0.1%. Figures are reported in billions of US dollars. Cell colors indicate the relative change compared to a single-rate structure: green for increases between 25% and 50%; light green for increases between 0% and 25%; light brown for decreases between 0% and 25%.

<table><thead><tr><th></th><th>% of Green</th><th>20%</th><th>40%</th><th>20%</th><th>40%</th><th>20%</th><th>40%</th></tr></thead><tbody><tr><th>Greenium</th><td></td><td>0.0%</td><td>0.0%</td><td>-0.2%</td><td>-0.2%</td><td>-0.1%</td><td>-0.1%</td></tr><tr><th>Penalty</th><td></td><td>+0.2%</td><td>+0.2%</td><td>0.0%</td><td>0.0%</td><td>+0.1%</td><td>+0.1%</td></tr><tr><th>Zone (% of global trading activity)</th><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><th>North America</th><td>(52%)</td><td>71</td><td>66</td><td>49</td><td>45</td><td>60</td><td>56</td></tr><tr><th>East Asia & Pacific</th><td>(29%)</td><td>39</td><td>37</td><td>27</td><td>25</td><td>33</td><td>31</td></tr><tr><th>Europe & Central Asia</th><td>(15%)</td><td>21</td><td>20</td><td>15</td><td>13</td><td>18</td><td>16</td></tr><tr><th>Rest of the World</th><td>(3%)</td><td>4</td><td>3</td><td>2</td><td>2</td><td>3</td><td>3</td></tr><tr><th>High income</th><td>(78%)</td><td>105</td><td>98</td><td>73</td><td>67</td><td>89</td><td>82</td></tr><tr><th>Upper middle income</th><td>(21%)</td><td>28</td><td>27</td><td>20</td><td>18</td><td>24</td><td>22</td></tr><tr><th>Lower middle & Low income</th><td>(1%)</td><td>2</td><td>2</td><td>1</td><td>1</td><td>1</td><td>1</td></tr><tr><th>EU</th><td>(10%)</td><td>14</td><td>13</td><td>10</td><td>9</td><td>12</td><td>11</td></tr><tr><th>G7</th><td>(65%)</td><td>88</td><td>83</td><td>61</td><td>56</td><td>75</td><td>69</td></tr><tr><th>BRICS</th><td>(21%)</td><td>29</td><td>27</td><td>20</td><td>18</td><td>25</td><td>23</td></tr><tr><th>G20</th><td>(95%)</td><td>128</td><td>120</td><td>89</td><td>81</td><td>108</td><td>101</td></tr><tr><th>OECD</th><td>(75%)</td><td>101</td><td>94</td><td>70</td><td>64</td><td>85</td><td>79</td></tr></tbody></table>
It should be stressed that a significant share of the potential revenues (more than half in most scenarios) would come from North America, primarily the United States. However, this raises a political caveat: the U.S. is currently among the countries least likely to implement a green FTT, due both to longstanding domestic opposition to such a tax and to its more limited commitment to global climate finance. In the short to medium term, this suggests that realizing the full global revenue potential of a green FTT would likely depend on strong participation from other major financial centers – particularly in Europe – and on building international momentum that could gradually shift the political feasibility of such an instrument in the U.S.

Still, the implementation of a green FTT does not require universal adoption to be effective. While international cooperation would clearly represent the first-best scenario, individual countries can adopt FTTs unilaterally, as they already do. As already noticed, several jurisdictions have long-standing FTT regimes (including the UK, France, Honk Kong, and others), which coexist with vibrant and liquid financial markets. The experience of these countries demonstrates that a well-designed FTT, applied at the national level, can be both operational and compatible with dynamic equity markets. The same applies to a green FTT: pioneering countries could lead by example, generating revenues and embedding climate incentives into their financial systems, while encouraging gradual broader adoption over time.

## 6.7 Benchmarking the Fiscal Potential of a Green FTT

To contextualize the previous estimates, it is useful to benchmark the potential revenues of a green FTT against those of existing fiscal instruments designed to finance global or environmental public goods.

The potential annual revenue from a green FTT would be broadly comparable to current global revenues from carbon pricing instruments. According to the World Bank's State and Trends of Carbon Pricing 2024, total revenues from carbon taxes and emissions trading systems (ETS) reached approximately $104 billion in 2023. In other words, a well-designed FTT could generate an amount of fiscal resources on par with existing carbon pricing mechanisms, but through a distinct and complementary channel. This comparison highlights the scale of the opportunity and the potential contribution of financial markets to global climate and environmental objectives.
A useful additional comparison can be made with the international air-ticket levy introduced in 2006 to finance global health initiatives through Unitaid. Currently implemented in around ten countries, this “solidarity levy” raises roughly $250–300 million annually. While modest in scale compared to the FTT’s potential, it provides an important precedent for an internationally coordinated micro-tax designed to fund global public goods. The FTT would operate in a similar spirit, but on a larger base and with broader environmental objectives, illustrating how small levies on globalized activities can yield meaningful and politically legitimate resources for global solidarity.

## 7. Practical and Political Feasibility

While the primary focus of this paper is on the design and potential of a green FTT, its real-world impact ultimately depends on practical implementation and political acceptability. Experience with existing FTTs demonstrates that such taxes can be introduced and maintained without undermining the functioning of financial markets.

In operational terms, implementing a green FTT would build upon robust infrastructures that already exist. The tax can be collected automatically at the point of legal settlement through established clearing and settlement platforms such as Euroclear or Clearstream. This mechanism ensures strong legal enforceability: the tax liability is triggered by a legally recognized transaction, reducing both evasion and administrative complexity. In practice, this system already handle, for instance, the UK Stamp Duty or the French FTT, with high levels of compliance and minimal disputes.

However, existing systems typically exclude intra-day transactions, which were historically ignored for practical reasons. These operations executed and reversed within the same trading day represent a substantial share of total volumes and are closely linked to high-frequency trading. Their exclusion, while administratively convenient, reduces both the tax base and the regulatory effectiveness of the FTT. Today, technological progress and the full digitalization of settlement systems make it entirely feasible to extend coverage to intra-day trades. Modern trading infrastructures already allow real-time reporting and automated collection at negligible marginal cost, meaning that all transactions, regardless of duration, could be taxed consistently.
Adapting existing systems to include same-day operations would therefore strengthen both the equity and the efficiency of the tax.<fnref n="11" />

Equally important, the transparency of tax collection should be considered a key design principle. Clear reporting on the amounts collected and on the destination of revenues (particularly when earmarked for climate action) would foster accountability and public acceptance. By combining robust settlement infrastructure with digital traceability and transparency in revenue use, the green FTT could thus enhance both operational integrity and democratic legitimacy.

Note also that concerns about relocation are largely theoretical: most transactions are tied to national settlement systems, and the combination of the issuance and residence principles ensures that both domestic and foreign investors remain within the tax net.

Rate-setting is another crucial dimension of practical implementation. In line with current practice, a green FTT could apply rates in the range of 0.1% to 0.5% for equities; this levels that our simulations show can raise significant revenues are commonly used with limited market impact. The proposed two-rate “bonus-malus” structure offers an additional degree of political flexibility, allowing adjustments to the base rate, the greenium, or the brown penalty in response to revenue objectives, market conditions, or negotiation outcomes.

Political feasibility is a more complex challenge. While universal adoption would maximize revenue and limit relocation risks, it is not a precondition for effectiveness. A coalition of willing countries (such as the member of a dedicated task force, EU member states, key East Asian countries, or selected OECD members<fnref n="12" />) could capture a substantial share of global transaction volumes. Moreover, the political acceptability of a green FTT could be enhanced by earmarking revenues for climate-related purposes, particularly under the CBDR-RC principle. Framing the tax as a contribution from the financial sector to the ecological transition also strengthens its symbolic legitimacy.

<footnote n="11">¹¹ The challenge raised by digitalization is not unique to financial transaction taxes. The broader issue of how reshapes tax collection and enforcement applies equally to other areas of taxation and economic activity. As the OECD has emphasized, the digital transformation of tax administration brings both opportunities (in terms of efficiency, transparency, and compliance) and new risks, particularly regarding data governance and institutional capacity. https://www.oecd.org/en/topics/digital-transformation-of-tax-administration.html</footnote>

<footnote n="12">¹² While our estimates assume global adoption, it is worth noting that the U.S. alone accounts for around half of global equity transaction volumes. Given the current political climate, U.S. participation in the short term is unlikely. The experience of existing FTTs in individual countries demonstrates that such taxes can function effectively without universal adoption.</footnote>
It is worth emphasizing that FTT are far from experimental instruments. They have existed for centuries and continue to operate successfully in some of the world's most advanced and liquid markets. National examples include the UK Stamp Duty (introduced in 1694 and still in force today), as well as the French and Italian equity transaction taxes, and similar regimes in Hong Kong, South Korea, and South Africa. Together, these experiences demonstrate that an FTT can coexist with vibrant, competitive financial markets, provided that it is designed with clear scope, simple collection mechanisms, and predictable rates.

In short, the implementation of a green FTT is technically feasible, politically adaptable, and supported by decades of operational experience in multiple jurisdictions. The main challenge is not administrative capacity, but building the political coalition willing to enact and sustain it.

## Conclusion: Making Finance Pay Its Due

The ecological transition requires not only massive public and private investment, but also a rethinking of the role of financial markets in serving long-term societal goals. The FTT, long discussed as a regulatory or fiscal tool, can be reimagined as a modest yet meaningful instrument of sustainable finance.

There are two complementary ways in which the FTT can contribute to this goal. The first is broad and systemic: any well-calibrated FTT can be considered “green” insofar as it mobilizes resources for global public goods, discourages excessive short-termism, and helps rebalance the relationship between finance and society. The second is more targeted and operational: a tiered or differentiated FTT directly embeds environmental incentives into market transactions. Both dimensions are complementary: the broader one establishes the rationale, while the narrower one provides a tangible pathway toward implementation (See Table B in Appendix).

This paper contributes to the existing debate in three main ways. First, it provides a conceptual framework linking the FTT to sustainable and climate objectives, bridging two policy fields that have largely evolved in parallel. Second, it proposes a simple yet scalable tiered-rate design that operationalizes the principle of common but differentiated responsibilities and respective capabilities within international climate finance. Third, it offers a first quantitative assessment of potential global revenues under realistic assumptions, illustrating both the fiscal magnitude and the political feasibility of such an instrument.

Of course, much remains to be explored. Future research could refine the calibration of rates and elasticities, test the behavioral responses of investors and issuers, and assess how
environmental differentiation could be credibly implemented given current ESG data limitations. From a policy perspective, the next step lies in coalition-building, beginning with a group of willing countries (e.g., a task force, EU or OECD members) and in integrating the FTT into existing international financing frameworks such as the Green Climate Fund.

Ultimately, the debate around a Green FTT goes beyond technical feasibility: it raises fundamental questions about the purpose of finance and its social contract with society.<fnref n="13" /> The Green FTT directly speaks to this issue by seeking to restore a sense of social utility to financial markets, ensuring that their vast resources serve collective, long-term goals rather than self-referential short-term gains. This is not about punishing investors or rejecting markets outright. Nor is it about setting finance and environmental protection against each other. Quite the contrary: it is about bringing them into better alignment. As Joseph Stiglitz has argued, the goal is to " harness the benefits of markets while taming their excesses, ensuring that markets work for people, not the other way around " (Stiglitz, 2019). While not a silver bullet, a well-designed green FTT can simultaneously help mobilize resources, correct harmful incentives, and restore a sense of fairness in the way financial actors contribute to global challenges.

In short, it is time for finance not just to speak the language of sustainability, but to pay its fair share. Whether directed toward climate resilience, ecosystem restoration, or the broader social and ecological transition, the green FTT offers a flexible yet principled framework to align financial contributions with global sustainability goals.

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# Appendix

## Table A. Sensibility of the Revenue to the Share of Green Firms

The estimates are based on a two-rate structure (baseline rate of 0.5%) and varying levels of greenium or penalty (from 0% to 0.5%, applied as a subtraction from or addition to the baseline). The share of green firms in the taxable universe varies from 10% to 80%. The model applies conservative assumptions: a transaction elasticity of -20% and an exemption/leakage rate of 85%. The global volume of equity transactions is estimated at $170 trillion, based on data from the World Bank and Refinitiv. Figures are reported in billions of US dollars. Cell colors indicate the relative change compared to a single-rate structure: dark green for increases above 50%; green for increases between 25% and 50%; light green for increases between 0% and 25%; light brown for decreases between 0% and 25%; brown for decreases greater than 25%; dark brown for decreases greater than 50%.

<table><thead><tr><th>% of Green</th><th>10%</th><th>20%</th><th>40%</th><th>50%</th><th>60%</th><th>80%</th></tr></thead><tbody><tr><th colspan="7">Penalty</th></tr><tr><th>+0.1%</th><td>120</td><td>118</td><td>114</td><td>112</td><td>110</td><td>106</td></tr><tr><th>+0.2%</th><td>139</td><td>135</td><td>126</td><td>122</td><td>118</td><td>110</td></tr><tr><th>+0.3%</th><td>157</td><td>151</td><td>139</td><td>133</td><td>126</td><td>114</td></tr><tr><th>+0.4%</th><td>175</td><td>167</td><td>151</td><td>143</td><td>135</td><td>118</td></tr><tr><th>+0.5%</th><td>194</td><td>184</td><td>163</td><td>153</td><td>143</td><td>122</td></tr><tr><th colspan="7">Greenium</th></tr><tr><th>-0.1%</th><td>100</td><td>98</td><td>94</td><td>92</td><td>90</td><td>86</td></tr><tr><th>-0.2%</th><td>98</td><td>94</td><td>86</td><td>82</td><td>78</td><td>69</td></tr><tr><th>-0.3%</th><td>96</td><td>90</td><td>78</td><td>71</td><td>65</td><td>53</td></tr><tr><th>-0.4%</th><td>94</td><td>86</td><td>69</td><td>61</td><td>53</td><td>37</td></tr><tr><th>-0.5%</th><td>92</td><td>82</td><td>61</td><td>51</td><td>41</td><td>20</td></tr></tbody></table>
<table><caption>Table B. Comparative Overview of the Effects of a Green FTT</caption><thead><tr><td>Type of effect</td><td>Standard FTT</td><td>Tiered FTT</td></tr></thead><tbody><tr><td>Fiscal /<br/>Redistributive<br/>effect</td><td>Generates stable revenues from an under-taxed sector; finances global public goods when earmarked; redistributive within countries (wealth concentration) and across countries (larger markets in high-income economies); operationalizes the CBDR-RC principle by linking fiscal effort to responsibility.</td><td>Adds differentiated rates that can raise revenues; links tax burden to both financial capacity and environmental performance; reinforces the CBDR-RC principle and equity between firms and nations.</td></tr><tr><td>Symbolic /<br/>Political effect</td><td>Reasserts the legitimacy of regulating finance and makes the financial sector contribute visibly to social goals; reinforces fairness and accountability narratives ("finance paying its fair share").</td><td>Strengthens the symbolic dimension by directly linking taxation and environmental performance; embodies a tangible form of climate responsibility within financial markets, enhancing political and public acceptability.</td></tr><tr><td>Behavioral /<br/>Incentive effect</td><td>Discourages high-frequency and short-term speculative trading; modestly lengthens investment horizons, indirectly favoring long-term and sustainable investment strategies.</td><td>Adds an explicit environmental incentive: differentiated rates penalize trades on polluting issuers; aligns market signals with sustainability objectives.</td></tr></tbody></table>