Huge swathes of Indonesia's jungles are under threat |
Forests are being burned and peat wetlands drained for plantations, causing huge releases of carbon dioxide into the atmosphere, Greenpeace said.
The environmental group warned of a potential "climate bomb" and called for the clearances to stop.
Palm oil is an ingredient in foods and a bio-fuel added to diesel for cars.
It is already controversial because it is often grown on rainforest land in South-East Asia, says the BBC's environment analyst Roger Harrabin.
But Greenpeace's "Cooking the Climate" report investigates the cultivation of the crop in Indonesian peat swamps, thought to be one of the most valuable stores of carbon in the world.
Carbon store
In normal rainforest there is much more carbon stored in microbes in the soil than in the leaves and branches of the trees.
In peat wetlands that is magnified with soils many metres deep. But these wetlands are fast being cleared and drained, causing large quantities of carbon dioxide to be emitted.
According to the report, every year 1.8bn tonnes of carbon dioxide - a major cause of climate change - are released by the destruction of Indonesia's peat wetlands.
"Unless efforts are made to halt forest and peatland destruction, emissions from these peatlands may trigger a 'climate bomb'," Greenpeace warned.
Indonesia is looking to become the world's top producer of palm oil.
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