Under the scheme, countries and businesses with high levels of pollution can invest in the fund and receive carbon credits from local communities that agree to curb deforestation, Amazon Environmental Secretary Virgilio Viana told reporters.

He said the state, which accounts for one third of Brazil's vast Amazon jungle, hopes to build the fund to 300 million dollars, with 30 million a year going to some 60,000 families in the region by 2010. Currently 8,500 families are listed to benefit.

The law was welcomed by environmental groups who hoped it will "set a vital example" for Brazil's federal government to follow, said Greenpeace's regional director Paulo Adario.

Brazil is the world's fourth leading producer of carbon dioxide -- the main greenhouse gas contributing to global warming -- with the problem exacerbated by deforestation due to logging, farming, livestock breeding and slash-and-burn farming by poor communities.

Meanwhile Bolivia's Hydraulic and Hydrology Institute said Tuesday that global warming is taking a toll on the country's glaciers, with the vast Chacaltaya glacier melting fast enough to disappear by 2015.

The glacier, at the Argentina-Chile border, snakes through Bolivia, Peru and Ecuador providing thousands of communities with their only source of water.

Global warming is blamed for the loss of half of Bolivia's glaciers (80,000 hectares, or 20,000 acres) over the past 50 years, the institute said, warning of an impending water-shortage catastrophe in Bolivia's cities and poor farming communities.

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