Source ftp://ftp.fao.org/docrep/fao/011/i0314e/i0314e06.pdf

World demand for palm oil has increased substantially in the last decade. The world’s two most important producing countries, Indonesia and Malaysia, have reacted to this demand by converting considerable areas of tropical forest to oil-palm estates. Indications of this in the decade from 1995–2005 are seen in the production figures, which rose from 5 million tonnes to 15 million tonnes in Indonesia, and from 8 million tonnes to 15 million tonnes in Malaysia. It is predicted that production will double again in the next decade.
Large areas of peatland forests have been given to concession holders for many years, and this has seen selective felling of valuable species of trees. An oil-palm operation starts with the digging of canals to drain the area. This immediately results in a lowering of the water table and the shrinking of the peat layer by several metres.

Fire is often used to eliminate the dead branches and leaves. The area gradually becomes accessible and roads are constructed. Once the area has been cleared, oil-palm seedlings can be planted. Once the water table is below the grass-root level, a process of oxidation starts and the peat is destroyed. In this process, CO2 is released. The scale at which land clearing takes place is enormous, and so are the amounts of CO2 released. The conversion of Southeast Asian peat forests is estimated to account for 6–7 percent of the total global release of CO2 into the atmosphere (UNEP et al., 2007).

The drivers that are leading to the destruction of the peat forests are global market forces. Indonesia’s increasingly open economy, its export development policies, and its vast tracks of “suitable” land further enhance this driver, as increasing demand for palm oil, coupled with investment opportunities, transforms large tracts of swamp forests in the country. The increased global demand for oil-palm products is driven by a number of uses, especially in the food industry, and the growing demand for biofuels.

National policies present a further set of drivers in that, at best, they are incapable of regulating the peat forest conversion in a more sustainable way. At worst, they facilitate the conversion to oil-palm estate. Foremost among these is the concession policy, without which oil-palm estates cannot be established, and which drastically changes the land tenure situation as entitlements are accorded to national and international companies at the expense of traditional usufruct rights of the local population. Although these concessions are supposed to be subject to environmental regulations (including environmental impact assessments [EIAs]), these are frequently weak or not enforced for various reasons.
Another driver of peat forest destruction is local poverty. The local poor who have lost access to the forest resources they used to rely upon, because of their conversion to oil-palm estates, search for new livelihoods. Local businesses offer attractive alternatives with illegal logging of remaining peat forests, thus exerting additional pressures on the forested wetland systems.