Font Size: 

The instability of the palm oil price is indicated caused by the discrimination prices through the issue and the regulation that stated the development of palm oil damaging the environment. Therefore, this study aims to look at how changes in global CPO prices, the price of CPO Indonesia, Indonesia's CPO production and the extensive areas that affect the environmental damage. To achieve the objectives, this study uses the Vector Error Corection Model (VECM) and Johansion Cointegration test and Variance decomposition Test approach
Variance decomposition Test approach to prove the occurring of short-term and long-term as balance; moreover, to observe how big the response from palm oil in damaging the environment in Indonesia. The data is the monthly data from 2008 until 2017 which are gathered from FAO, WTO and Ministry of Environment of Republic Indonesia. The Study have discovered that the short- term balance of environmental damage index variable in a previous period and Indonesian CPO production variable in the previous period have positive influence to the environmental damage now. However, the Indonesia's CPO production variable in two previous period have negative influence to environmental damage now. In addition, the changes of global CPO prices, Indonesian CPO price, Indonesian
oil palm production, the area of palm oil plantation and environmental damage have a longterm balance. Furthermore, the results of the variance decomposition test prove that changes in the price and production of Indonesian CPO give a shock on changes in the index of environmental damage