Harmonic Alliance The ECOLOGICAL Stock a financial market instrument for global scale Climate Change

1
Harmonic Alliance The ECOLOGICAL Stock a
financial market instrument for global scale
Climate Change mitigation

• Vicente Rappaccioli Navas
• Founder
• 2006

2
Introduction

• The world economy can grow only if it is running
  profitably. Profit is the financial return on
  investment that allows new capital investments to
  support continued employment and growth. Based
  upon this fact, how can there be probable
  investments in Climate Change mitigation from
  industrialized or developing countries with the
  absence of financial incentives?.
• Since profit is the key motivating factor for all
  capital investments, the global economic system
  needs revolutionary financial product innovations
  to motivate economically attractive investments
  in both Sustainable Development and Climate
  Change mitigation.
• The Kyoto Protocol does not offer any economic
  incentive for Emission Reductions.
• The Ecological () stock, or interchangeably
  the EcoStock, has been designed to provide the
  financial motivating factor for the world economy
  to achieve global scale Climate Change
  mitigation profitability.

3
Global Risk

• Global Risk (GR) is the combined world
  economic, political, social and warfare risk that
  is rapidly resulting from the unparalleled
  planetary ecological degradation with drastic
  Climate Change strategic natural-resource
  scarcity.
• The measurement of GR links Climate Change and
  ecological degradation with the performance of
  the world economy that is, GR increments are
  directly associated with the rising economic
  losses produce by Climate Change. Hence, there is
  a need to control and reduce GR . This can be
  accomplished through the global investment areas
  of the EcoStock outlined in the following
  section .
• The current growth projections for the global
  economy have no sound basis because the GR factor
  is excluded from the equation GR assessment must
  be inserted in the Balance Sheet of national and
  multinational corporations and in the GDP GWP
  calculation.
• In the medium-to-short term, GR with its current
  ascending trend is quickly generating the ground
  stone of a major world economic recession,
  without unpredictable consequences and
  proportions in human history, if global united
  actions are not taken without further delays.

4
Global Risk- 23 variables -rates

• It involves the assessment of the following
  variables by country, region and the globe in
  terms of rate, percentage, monetary value, etc.
  1) Deforestation 2) Water scarcity
  contamination (I.e. rivers, lakes and
  underground water sources) 3) Soil erosion
  contamination 4) Desertification 5)
  Biodiversity loss 6) Concentration of GHGs in
  the atmosphere 7) Primary and secondary forest
  land per capita forest land/ total population.
  This variable determines the ecosystem capacity
  to support the economic system and the
  population 8) Agricultural sustainability 9)
  Ocean ecosystem degradation 10) Ozone layer
  depletion 11) Climate Change intensity and
  variability 12) Food security 13) Environmental
  emigrant. This variable measures the number of
  people leaving their native land because of
  environmental problems, Climate Change or
  agricultural losses 14) Nuclear waste 15)
  Poverty 16) Unemployment 17) General Price
  Index 18) Environmental Law effectiveness 19)
  Environmental education 20) R D on renewable
  energy technology as a percentage of GDP 21)
  Disease propagation. (I.e. Over pollution
  contamination with high temperatures and virus
  bacteria natural mutation facilitates the
  propagation of old and new diseases into
  epidemics) 22) Sustainable Development as a
  percentage of GDP 23) Political and nuclear
  confrontation probability for the dwindling
  strategic natural resources.

5
Global investment areas of the EcoStockPerpetu
al-life projects.

• a) Forest conservation. Natural sinks. (I.e. The
  Amazon forest the Mesoamerican forest the
  African tropical forest).
• b) Large-scale reforestation. Restored ecosystem
  sinks. (I.e. Latin America Africa India
  China Australia US Russia Europe..).
• c) Renewable energy technology. Global emission
  reductions. (I.e. industrialized, developing and
  poor nations).
• d) Foreign debt swaps of poor and developing
  countries for any of the above.
• e) CDM projects in the above investment areas.

6
Description

• The EcoStock is a hybrid, certifiable
  tradable financial instrument designed for the
  world exchanges.
• As a hybrid instrument, it combines augmented and
  expanded financial features of a corporate stock,
  a commodity, a derivative and a perpetuity- an
  innovative financial instrument.

7
Main Objectives

• 1) Develop a global and profitable financial
  market for Emissions and Environmental Services
  trading to generate massive capital investment
  shifts into Climate Change mitigation.
• 2) Achieve global emission reductions without
  limiting targets as well as the neutralization of
  carbon other GHGs.
• 3) Financially motivate the participation of All
  nations in Climate Change mitigation and
  neutralization in the capital markets under the
  Kyoto Protocol, to facilitate its full
  implementation, as well as under a voluntary
  scheme.
• 4) Avoided Deforestation.
• 5) Reduction of Global Risk.
• 6) Major cost reductions in meeting ER
  commitments.
• 7) Foster market efficiency and portfolio
  diversification.
• 8) Integration of the major world exchanges and
  expansion of the capital markets.
• 9) Promote global Sustainable Development.
• 10) Cutback of large-scale crop losses
  world-wide.
• 11) Deterrence of a world economic recession.
• 12) Nature conservation.
• 13) Prevention of political conflicts, including
  nuclear confrontation, for the rapidly dwindling
  strategic natural resources.

8
The international financial system and Climate
Change

• The international financial system of today has
  the ready capacity to take in product innovations
  to satisfy new latent demand of the global
  economy, like the urgent necessity to mitigate
  Climate Change and reduce Global Risk, with the
  participation of the private sector through the
  most feasible way the exchanges. A gradual
  integration of the exchanges a greater
  deregulation oriented to foster market efficiency
  are highly favorable factors.

9
Hybrid Financial Features A) An expanded
perpetuity

• The EcoStock has no maturity date because the
  investment projects from which it emanates are
  intrinsically perpetual as the first legally
  binding condition. In a natural forest or
  reforestation project, the forest land will be
  perpetually preserved (I.e. The Amazon forest.).
  A renewable energy project will be open-ended
  with RD conditions for continuous technological
  upgrades. The legal guarantee is satisfied by
  registration of the project in the National
  Registry of the host country with an irrevocable
  perpetual condition.
• The earnings, the cash inflows and/or dividends,
  are, therefore, perpetual with payment modes
  customized to investor's needs fixed,
  periodically adjustable, pegged, floating or
  declared. (I.e. an energy project will sell
  energy in the host country and trade carbon in
  the global market).

10
B) A commodity. Climate Change mitigation occurs
through ERs plus project environmental products.

• There are three basic conditions that must be met
  for environmental products, renewable energy or
  GHGs to be commodities transferability,
  measurability and marketability. Transferability
  is satisfied through the EcoStock as a
  certified and registered security in the
  exchanges. I.e. the same way gold is transferred
  in the exchanges, which uses the traditional
  financial contracts derivatives. Measurability
  is possible for every single commodity.
  Marketability . GHGs are marketable commodities
  not just due to the Kyoto Protocol and national
  environmental legislations, but also because of
  the urgent need of the world economy to
  voluntarily reduce their excessive accumulation
  in the atmosphere. Similarly to gold and other
  precious metals, environmental products and
  renewable energy technology are scarce and
  precious commodities because of their vital role
  for the sustainable running of the economy.
  Hence, they do not only have market demand for
  Climate Change mitigation, but also are a real
  hedge against Global Risk.
• Water, oxygen, fertile soil conservation and
  biogenetics are quickly becoming scarce strategic
  resources. In the short run, these commodities,
  along with hydrogen energy, will be the next ones
  to enter the global market.

11
B) A commodity (cont.)

• The investment projects generate specific
  commodities and the corresponding Mitigation
  Neutralization Certificates (MNCs). The latter
  one encompasses the certified emission reductions
  plus the projects overall ecosystem
  environmental products.
• Project Commodity
  MNC
• Energy Renewable energy technology ERs
  of CO2 other GHGs
• 
  G Warming reduction/offset
• Forest Conservation
• reforestation H2O, O, Biogenetics
  ERs of CO2 (Carbon sinks)
• Soil
  fertility other GHGs
• 
  Natural ecosystem cycles
  of
• 
  H2O, O, Biodiversity
  Soil
• 
  G Warming reduction/offset

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C) An augmented derivative- Eco Derivative.
The traditional technical definition of a
derivative is a financial contract the value of
which is derived from the value of another
(underlying) asset, such as an equity, bond or
commodity. However, derivatives are not new
options and forwards are as old as trade. In
recent economic history, money was the most
widely used derivative mainly during the period
of the Gold Standard its price was derived from
the value of gold as a universal instrument of
exchange. The underlying assets can be financial
or non-financial in nature.

• The market value of the EcoStock is derived
  from the combined value of the following three
  certifiable tradable mitigation underlying
  assets
• CCM Asset I CCM Asset II
  CCM Asset III
• (Project) (Commodity)
  (MNC)
• Energy Renewable energy/technology
  CO2 other GHGs
• 
  Global Warming reduction/offset
• Natural Forest
• Reforested Land H2O, O, Biogenetics
  CO2 (Carbon sinks)
• Soil
  fertility other GHGs
• 
  Natural ecosystem cycles
• 
  Global Warming reduction/offset
  
  

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C) An augmented derivative (cont.)

• The trading of Futures, Options, Swaps and
  Exotics of EcoStocks in the world exchanges
  will provide significant market flexibility,
  efficiency and liquidity with relevant cost
  reductions for national and multinational
  corporations to meet ER targets under the Kyoto
  Protocol and under the voluntary scheme.
• Additionally, as the Kyoto Protocol is linked to
  the Montreal Protocol, the ozone layer depleting
  elements can be introduced into the market.

14
Foreign Debt Swaps

• Most developing countries contain the remaining
  primary forests strategic natural resources of
  the planet and are running with high foreign
  debts.
• The "EcoStock is a feasible and flexible
  alternative to reduce their debt burden via
  foreign debt swaps.
• These types of swaps will foster Sustainable
  Development in developing countries and
  contribute in preserving strategic natural
  resources, mitigate Climate Change, reduce
  poverty and increase food security.

15
D) The dividend

• The dividend per share of the EcoStock is a
  perpetual one with flexible payment modalities of
  the augmented perpetuity.
• The Perpetual Growth Model of financial theory
  provides a fair and very basic illustration for
  the calculation of the expected return, R.
  
• RDividend 1
  G
• Po
• D1 Dividend per share at end of first period
  Po Current market price a share G Annual
  expected dividend growth over the future.
• This model can be modified so that G will change
  annually according to investors estimate of the
  market growth potential in the long run.

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E) A universal financial instrument.

• Similarly to the corporate stock, the EcoStock
  is a transferable unit of ownership with profit
  rights through dividends and price appreciation .
  The added special financial feature consists in
  encompassing the three certified underlying
  Climate Change mitigation assets with their
  respective market values as an inherent part of
  its stock market price.
• The diversity of classes of shares (I.e. Amazon
  forest, Argentinean reforestation, China
  renewable energy project, ) and the perceived
  market value of EcoStocks will reflect
  investors preferences expected return,
  influencing its market demand and price
  appreciation.
• The shareholder as perpetual ecological owner for
  forest and reforested lands is a legal feature
  that eliminates the potential political and
  environmental concerns of host countries
  regarding national sovereignty (I.e. Amazon
  forest).

17
E) A universal financial instrument (cont.)

• Once the project has been certified under the
  Kyoto Protocol or under a voluntary scheme, a new
  kind of corporation is established, the main
  mission and business activity of which is
  mitigating Climate Change as a legally binding
  and perpetual condition. This legal feature,
  which is a sound guarantee for investors and the
  international community provides the ground stone
  for the birth of a specialty and novel type of
  legal entity the Climate Change Mitigation
  Corporation (CCM Corp.) , the only authorized
  organization for the issuance of EcoStocks.
• Besides the legal guarantee of a registered
  security in the exchanges, the EcoStock is
  readily endorsable by national Climate Change
  environmental legislation and by the Kyoto
  Protocol CDM modalities procedures Policies,
  measures and instruments to mitigate climate
  change.
• .
• Note Proxy entities in economic history
  cooperatives associations.

18
E) A universal financial instrument (cont.)

• As the international financial system becomes
  gradually more efficient with the integration
  between the major world exchanges with those of
  the emerging economies and of host country
  projects, so that the trading among them takes
  place as a single global exchange, facilitating
  the speed and volume of transactions, the
  EcoStock is designed to become, in the
  short-run, a universal financial instrument
  thanks to its hybrid financial features that
  provide versatility for unlimited different
  modalities to tailor investor's present and
  future business needs of both, the supply and the
  demand side of the market, its return on
  investment, its cost efficiency for ERs, its
  effectiveness to mitigate Climate Change without
  limiting targets, its capacity to hedge Global
  Risk and its low investment risk.
• The business activity will not be subject to the
  risk of traditional business cycles because the
  projects will be operating with an open-ended
  global demand for Climate Change mitigation and
  neutralization as well as for Global Risk
  hedging. The CCM Corp. may engage in additional
  complementary activities to augment its core
  business and expand profit as well as
  stockholders value.

19
Market Development

• The current players of the financial market
  plus corporations with emission reduction
  policies, Carbon Neutral strategies or
  mandatory emission regulations along with local
  federal governments, within the Kyoto Protocol or
  voluntarily, will have the option of investing in
  EcoStocks for two main reasons simultaneously
  profit and CC mitigation neutralization.
• Profitability joined with an attractive
  investment return and a low investment risk
  offered by a uniquely versatile financial
  instrument will be stimulating the supply and
  demand market forces to grow freely,
  progressively developing into a new global
  financial market for emissions and environmental
  services trading. This new global market opens
  the opportunity for large and small investors
  world wide to participate in the exchanges in CC
  mitigation and carbon other GHGs emission
  neutralization economic democratization of CC
  mitigation.
• The establishment of a new syndicated global
  bank specialized in financing Climate Change
  mitigation is vital for the world economy.

20
Pricing Placement

• The introductory price will be a reference value,
  using the placement approach of Making a Market
  at a selected major exchange for pilot trading,
  allowing the demand-supply market forces and
  investors perception to set the price.
• The reference price will vary by project type.
  Its value encompasses all market variables,
  Climate Change environmental information
  regarding the particular project.
• Market demand for the three certified underlying
  assets plus the rising necessity to mitigate
  Climate Change and reduce Global Risk will,
  consequently, be favorably influencing the price
  appreciation in the short-run.

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CER EcoStockMain differences

• A hybrid financial instrument
• operating in the world exchanges
• with the versatility of the
• combined features of a corporate
• stock, a commodity, a derivative
• a perpetuity
• Perpetual rights of ownership plus
• rights to dividends, capital gains and
• trading of CCM Certificates- ERs
• project environmental products
• Traded voluntarily for profit,
• allowing the free market to
• mitigate CC without limitations
• Unites industrialized nations with
• developing-poor nations for
• Climate Change mitigation

• A certificate
• Limited to trading rights for emission
• reductions excluding, thus, the
• environmental products of any given
• project.
• Traded between parties to meet
• ER commitments
• Separates industrialized nations
• from developing-poor nations 
•        

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Operational Flow

• Initial group of investors (i.e. National
  Multinational Corporations, Investment Banks,
  individual institutional investors, Venture
  Capital firms, etc.,).
• Climate Change mitigation projects-Investment in
  monetary units A) Reforestation B) Renewable
  Energy C) Natural Forests.
• Project certification in the voluntary market.
• Establishment of the Climate Change Mitigation
  Corporation (CCMCorp.).
• Certified issuance of the Mitigation
  Neutralization Certificate (MNC).
• Certified issuance and registration of
  EcoStocks at a selected major exchange.
• Pilot Trading.
• Primary exchange market development.
• Secondary exchange market development.

23
Market Base

• Carbon and other GHGs emission neutralizers. This
  sector involves national multinational firms
  having a corporate strategy of neutralizing their
  emissions plus large small investors and
  citizens of all nations.
• Large, medium small size industrial polluters.
  I.e. Petroleum firms, Auto Makers, Chemical
  Co., Utility Co., Airline Co., etc.) .
• Agriculture and the food industry.
• The pharmaceutical industry.
• The rising new ecologically-friendly industries.
• Current players of the financial market (I.e.
  Investment Banks, Mutual Funds, institutional and
  individual investors, etc.,).

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Investor's Main Investment Benefits

• 1) Profit. (I.e. dividends plus capital gains).
• 2) Cost efficiency and cutback in meeting Kyoto
  Protocol or voluntary emission reduction targets.
• 3) Avoidance of Kyoto Protocol or national
  regulatory penalty costs. (I.e. in the short
  run, there will be an increasing number of
  projects from the supply side of the market
  readily available as EcoStocks to parties with
  emission reduction commitments).
• 4) Financial and non-financial benefits from
  carbon and other GHGs emission neutralization.
• 5) Corporate green-ecological marketing.
• 6) Partial or complementary environmental
  liability compensation. (I.e. when applicable,
  environmental liabilities and fines could be
  partially compensated with investments in
  EcoStocks. Corporate environmental costs are
  gradually being required that they be explicitly
  accounted for disclosure in the Profit Loss
  Statement. Some investors claim that corporations
  have the customary practice of hiding or
  downplaying clean-up costs, fines and other
  environmental liabilities that shareholders need
  to know about for their investment decisions
  making).
• 7) Lower impact on national budget deficits.
  (I.e. industrialized governments will not need
  to use their scarce funds and, thus, there will
  be less pressure on their large national
  deficits).
• 8) Income tax exemptions environmental tax
  credits. (I.e. these incentives could
  potentially be offered by governments to
  stimulate investment).
• 9) Global productivity improvement for sustained
  economic growth.

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Key success variables

• Beyond traditional thought. Traditional financial
  thinking must be surpassed to realize that
  investing in forest conservation, reforestation
  and renewable energy projects is good business
  and that the development of an Emission and
  Environmental Services Trading Market through
  financial product innovation can both profitably
  and effectively mitigate and neutralize Climate
  Change.
• Global Risk awareness. Economic and political
  leadership- a planetary vision to reduce Global
  Risk and to achieve true global Sustainable
  Development for the well-being and prosperity of
  all nations.
• Economic, entrepreneurial and political will to
  go beyond the low emission reduction targets of
  the Kyoto Protocol within the short-term by
  simply endorsing readily functional financial
  product innovations such as the EcoStock.
• Corporate community will to foster integration of
  the world exchanges to stimulate capital market
  expansion and dynamics.
• Financial operating transparency and integrity.
• Ecological transparency and integrity.
• Foundation of a syndicated bank specialized in
  the financing of Climate Change mitigation and
  neutralization. Industrialized governments can
  ideally participate in the foundation of this
  international bank.

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Climate Change Economic Transformation

• Since the 1700s the world economy and the human
  population have grown exponentially without
  Sustainable Development principles, which led
  into the exploitation-production-consumption
  unsustainable or nonrenewable economic system
  that continues to operate to the present. Thus,
  today the global economic system urges for a
  Sustainable Development Intelligent Design
  (SDID). This design has the objective of
  establishing the basis of global Sustainable
  Development with special focus in the mitigation
  and neutralization of Climate Change to restore
  the ecological equilibrium and the climate system
  of the planet. As a starting point, SDID includes
  the incorporation of the economic value of the
  Earths ecosystems environmental products, goods
  services, into the economy through the pricing
  system and, thence, in the accounting of the GDP
  GWP to assure constant economic growth.
• The international community is at a historical
  turning point- an unprecedented opportunity for
  union to transform the economic system based upon
  a SDID and, so, incentive intense capital
  investment into renewable energy technology,
  reforestation and natural forest conservation for
  the birth of a sustainable global economic system
  with new ecologically friendly employment-generati
  ng industries. If so, what is, then, the actual
  cost of bypassing this historical opportunity for
  a revolutionary global economic transformation
  greater than that of the Industrial Revolution?.
  Is the answer a gradual global economic recession
  in the short-term partial or total economic
  collapse in the medium-long term?

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Climate Change Economic Transformation (cont.)

• With the current economic system, the most
  effective, faster and viable alternative to
  implement SDID is through the international
  capital market with financial product innovation.
  The EcoStock, shows, then, that Climate Change
  mitigation and neutralization can be done in a
  financially feasible way with the active and
  extensive participation of the private sector,
  investing with certified effectiveness in Climate
  Change mitigation and neutralization, while
  fostering Sustainable Development. The EcoStock
  is, therefore, a financial innovation at hand of
  the international community that will financially
  feasibly fuel global intensive Climate Change
  mitigation and neutralization beyond a carbon
  neutral world and beyond global emission
  reductions, facilitating a soft economic
  transition towards a Sustainable Development
  Intelligent Design. Therefore, the "Ecological"
  stock in the international exchanges will
  encourage the participation of ALL nations,
  through profitability, opening the opportunity
  for the economic democratization of Climate
  Change mitigation and neutralization, gradually
  resulting in promoting the union of the East and
  the West, the North and the South, with true
  global cooperation independently of investors
  country of origin and political ideology , thus,
  strengthening world sustainable economic growth
  and political stability.
• The EcoStock is a feasible option at hand of
  the international community and is readily
  endorsable by national Climate Change
  environmental legislation as well as by the Kyoto
  Protocols CDM Modalities Procedures and
  Policies, measures and instruments to mitigate
  climate change.

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Annex I- Empirical Research Findings

• Climate balance is considerably restored and
  Climate Change reversed within a medium-term
  (I.e. 6-10 years) when forest coverage and
  natural biodiversity is replenished. There is the
  same empirical support for the opposite. Computer
  modeling can simulate and confirm this empirical
  finding. Further empirical evidence shows that
  the minimum forest land coverage for all
  continents required to restore ecological
  equilibrium and, consequently, climate balance is
  60. Either a 100 global carbon and other GHGs
  emission reduction relative to the 1700 level or
  a 100 neutralization of GHGs is a prerequisite
  condition for triggering the natural biochemical
  interactions and the quantum physical mechanisms
  of the ecology to start restoring the climate
  system of Earth. Additionally, considering the
  proof provided by The Forestry Commission of
  Great Britain that deforestation and land use
  change currently account for 18 of global
  emissions of carbon dioxide, reforestation and
  avoided deforestation have a direct scientific
  and economic linkage to Climate Change.
  Therefore, Global Programs in the areas of Forest
  Conservation, Reforestation Renewable Energy
  are elemental to guarantee a significant Climate
  Change mitigation and neutralization so as to
  restore the planetary climate system. These
  programs can be initiated through profitability
  with financial product innovation in the free
  market system.
• Methodology of study utilized Taoism ()- an
  ancient eastern empirical method. Countries
  Costa Rica, Nicaragua, Mexico and the US. Period
  1977-2006, interchangeably among the above
  mentioned countries.

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Contact

• Interested parties in the EcoStock can contact
  the author.
• E-mail admin_at_harmonicalliance.com
• Fax (506)- 2-25-10-25. Costa Rica.
• Tel. (506)- 2-34-05-20. Costa Rica.

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