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

1. Harmonic AllianceThe “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 “EcoStock”:Perpetual-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 generatemassive 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 FeaturesA) 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 R&D 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 project’s 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

12. 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

13. 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. • * R=Dividend 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 investor’s estimate of the market growth potential in the long run.

16. 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 investor’s 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 alegally 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 stockholder´s 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 investor’s 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.

21. 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  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 CER & “EcoStock”Main differences

22. 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.,).

24. 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.

25. 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.

26. 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 Earth’s ecosystem’s 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-generating 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?

27. 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 investor’s 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 Protocol’s “CDM Modalities & Procedures” and “Policies, measures and instruments to mitigate climate change”.

28. 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 levelor 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.

29. Contact • Interested parties in the “EcoStock” can contact the author. • E-mail: admin@harmonicalliance.com • Fax: (506)- 2-25-10-25. Costa Rica. • Tel.: (506)- 2-34-05-20. Costa Rica.