Environmental, social and cultural impact.

Palm oil production is a basic source of income for many of the world's rural poor in South East Asia, Central and West Africa, and Central America. An estimated 1.5 million small farmers grow the crop in Indonesia, whereas about 0.5 million people are directly employed in the sector in Malaysia, plus those connected with spin offs. Not only does the palm represent a pillar of these nation's economies but it is a catalyst for rural development and political stability. Many social initiatives use profits from palm oil to finance poverty alleviation strategies. Examples include the direct financing of Magbenteh hospital in Makeni, Sierra Leone, through profits made from palm oil grown by small local farmers, the Presbyterian Disaster Assistance's Food Security Program, which draws on a women-run cooperative to grow palm oil, the profits of which are reinvested in food security, or the UN Food and Agriculture Organisation's hybrid oil palm project in Western Kenya, which improves incomes and diets of local populations, to name just a few.

As of 2006, the cumulative land area of palm oil plantations is approximately 11 million hectares. In 2005 the Malaysian Palm Oil Association, responsible for about half of the world's crop, estimated that they manage about half a billion perennial carbon-sequestering palm trees. Demand for palm oil has been rising and is expected to climb further.

This rising demand is resulting in tropical forest being cleared to establish new palm plantations. According to UNEP, at the current rate of intrusion into Indonesian national parks, it is likely that many protected rain forests will be severely degraded by 2012 through illegal hunting and trade, logging, and forest fires, including those associated with the rapid spread of palm oil plantations. There is growing concern that this will be harmful to the environment in several ways:

Significant greenhouse gas emissions. Deforestation, mainly in tropical areas, account for up to one-third of total anthropogenic CO2 emissions.

Habitat destruction of certain endangered species (e.g. the orangutans in Borneo, the Sumatran tiger, and Asian rhinoceros.)

Potential extinction of some such species.

Many places that are of interest for growing palm are biodiversity hotspots, increasing the impact of this development on the environment. In addition to environmental impact, the logging and land-clearing by large timber companies that accompany the establishment of palm plantations threatens the livelihood of minority tribes such as the Penan and Iban in Sarawak, Borneo.

Damage to peatland, partly due to palm oil production, is claimed to contribute to environmental degradation, including four percent of global greenhouse gas emissions and eight percent of all global emissions caused annually by burning fossil fuels, due to the large areas of rainforest that are cleared to make way for palm oil plantations. The pollution is exacerbated because many rainforests in Indonesia and Malaysia lie atop peat bogs that store great quantities of carbon that are released when the forests are cut down and the bogs drained to make way for the palm oil plantations.

NGOs have accused the growth of new palm oil plantations as also being responsible for peat forest destruction in Indonesia and for accelerating global warming. Greenpeace concluded that many food and cosmetics companies, including ADM, Unilever, Cargill, Proctor & Gamble, Nestle, Kraft and Burger King, are driving the demand for new palm oil supplies, partly for products that contain non-hydrogenated solid vegetable fats, as consumers now demand fewer hydrogenated oils in food products that were previously high in trans fat content. Friends of the Earth have concluded that the increase in demand comes from biofuel, with producers now looking to use palm as a source.

Environmental groups such as Greenpeace claim that the deforestation caused by making way for oil palm plantations is far more damaging for the climate than the benefits gained by switching to biofuel. The world's centres for oil palm production are Indonesia and Malaysia where rapid deforestation and the drying out of asssociated peatlands are, Greenpeace claim, releasing huge amounts of carbon dioxide into the atmosphere and thereby speeding climate change.Greenpeace identified Indonesian peatlands, unique tropical forests whose dense soil can be burned to release carbon emissions, that are being destroyed to make way for palm oil plantations. They represent massive carbon sinks, and they claim their destruction already accounts for four percent of annual global emissions. Greenpeace recorded peatland destruction in the Indonesian province of Riau on the island of Sumatra, home to 25 percent of Indonesia's palm oil plantations. There are plans to expand the area under concession by more than 11,000 square miles, which would deforest half of the province. They claim this would have devastating consequences for Riau's peatlands, which have already been degraded by industrial development and store a massive 14.6 billion tons of carbon, roughly one year's greenhouse gas emissions.

Research conducted by Greenpeace through its Forest Defenders Camp in Riau documents how a major Indonesian palm oil producer is engaging in the large-scale, illegal destruction of peatland in flagrant violation of an Indonesian presidential order, as well as national forestry regulations. Palm oil from peatland is fed into the supply chain for global brands. They accuse major multinational companies of turning a blind eye to peatland destruction to supply cheap vegetable oil. FoE and Greenpeace both calculate that forests and peatlands that are replaced as palm oil plantations release more carbon dioxide than is saved by burning biofuels in place of diesel.

In Africa, the situation is very different compared to Indonesia or Malaysia. In its Human Development Report 2007-2008, the United Nations Development Program says production of palm oil in West-Africa is largely sustainable, mainly because it is undertaken on a smallholder level. The United Nations Food and Agriculture program is encouraging small farmers across Africa to grow palm oil, because the crop offers opportunities to improve livelihoods and incomes for the poor.

Environmentalists and conservationists have been called upon to become palm oil farmers themselves, so they can use the profits to invest in their cause. It has been suggested that this a more productive strategy than the current confrontational approach that threatens the livelihoods of millions of smallholders.

Many of the major companies in the vegetable oil economy participate in the Roundtable on Sustainable Palm Oil which is trying to address this problem. Meanwhile, much of the recent investment in new palm plantations for biofuel has been part-funded through carbon credit projects through the Clean Development Mechanism; however the reputational risk associated with unsustainable palm plantations in Indonesia has now made many funds wary of investing there.