KUALA LUMPUR - Indonesia will stick to a controversial plan to open peatlands for oil palm estates as it seeks to develop the economy despite protests from green groups that this type of land conversion speeds up climate change.

The Southeast Asian country wants to maintain its position as the world's top palm oil producer as it looks to hand over degraded land including peatlands to planters, a top Indonesian government official said on Wednesday.

Peat is the accumulation of partially decayed vegetation in very wet places and burning peatland forests in Indonesia pumps large amounts of carbon into the atmosphere and fans choking smoke across the region during the dry season.

But the world's No.3 CO2 emitter has set aside 8 percent of its 25 million hectares of peatlands this year that prove to have low carbon stores in a bid to control land conversions, said Rosediana Suharto, head of the Indonesian Palm Oil Commission.

We have not issued any licenses so far because of the strict criteria like maintaining water tables and we do have a zero-burning tolerance for these lands, Suharto told Reuters at the sidelines of a palm oil conference in the Malaysian capital.

Some companies are interested in peatlands and we are working with those who want to safeguard the environment and ensure our country's prosperity.

Indonesia has planted palm estates of 7.1 million hectares. Palm oil generated exports revenue of $10.7 billion, or about 10 percent of the country's non-oil and gas exports in 2008.

PEATLANDS VS PALM ESTATES

A willingness to transform peatland forests into farmland sidelines 36 out the 150 planters like London Sumatra and Musim Mas who belong to an industry initiative that commits to produce palm oil without expanding into forests, Suharto said.

And that is further complicated by an ongoing tussle between planters and green groups in Roundtable of Sustainable Palm Oil (RSPO) on whether further land expansion should be limited based on greenhouse gas calculations.

If the peatland we have set aside has low carbon reserves and given oil palm estates ability to act as net carbon sink, then expansion in these areas should go on, Suharto said.

We have not been wantonly cutting down forests the way the green groups accuse us of doing.

About 2 million hectares are suitable for oil palm estates and since the 1970s, a little less than half have been taken up by planters, Suharto said.

The rest of the peatland forests hold the world's largest carbon reserves, holding around 37.8 billion tonnes, according to environment group Greenpeace.

Indonesia's government has said the country has released 2.3 billion tonnes of carbon dioxide in 2005 -- or 10 tonnes per Indonesian and forecast it would jump to 2.8 billion due to the farm and forestry sector expansion.