Indonesia’s palm oil industry is an important economic driver, but it is also considered to be a major cause of deforestation. This paper reviews the impact of the palm oil industry expansion on Indonesia’s economy using a partial equilibrium model. We consider three potential causes: growth in foreign demand; land policy; and productivity growth. Land policy produces a large impact in forest losses and positive impact on labour income changes. Growth in foreign demand gives a less severe impact on forest cover and a higher impact on labour incomes. Finally, productivity growth causes smaller impacts on forest cover but also little impact on labour incomes.