The measure was aimed at combating the negative image of palm oil output, which green groups say has been partly fueled by producers in Southeast Asia cutting down swathes of rainforests and draining carbon-rich peatlands.

But Malaysian and Indonesian producers say imposing limits on land expansion based on greenhouse gas emissions was an unfair barrier to trade as oil palm estates could act as net carbon sink.

The CO2 targets were delayed by a year pending further study and watered down to a voluntary undertaking during the Roundtable of Sustainable Palm Oil (RSPO) that brings together producers, buyers and NGOS this week in the Malaysian capital.

"We are disappointed because we wanted the target for this year," said Jan Kees Vis, chairman of the RSPO, which has been tasked with formulating a green standard for the industry.

"However, looking at how even the Copenhagen climate talks may not even reach a resolution in December, perhaps its not too bad. It's part and parcel of trying to get everyone to agree."

Once hailed as a biofuel feedstock that can cut the world's reliance on petroleum diesel, palm oil now struggles with a negative image that estate expansion fuels climate change.