The parliamentary decision, which is set to come into force from 2020, has been welcomed as a victory in the fight to save rainforests, prevent climate change and protect endangered orang-utans.
It comes after a gradual process in which Norwegian politicians have pushed to ban harmful palm oil from their country, including a vote last year to stop the government itself purchasing the biofuel.
However, that decision was never fully implemented as the government opted to rely on voluntary measures instead.
Monday’s vote was not only stronger, with majority government support, it was also more comprehensive as it covered the entire fuel market.
It called for the government “to formulate a comprehensive proposal for policies and taxes in the biofuels policy in order to exclude biofuels with high deforestation risk”.
The decision comes after Norway’s consumption of palm oil in fuels reached an all-time high last year, a result of measures to cut fossil fuel use in transport.
Monday's vote was welcomed by Norwegian environmentalists, who said the move should inspire other nations to follow suit.
“The Norwegian parliament’s decision sets an important example to other countries and demonstrates the need for a serious reform of the world’s palm oil industry,” said Nils Hermann Ranum of Rainforest Foundation Norway.
A report released by environmental consultancy Cerulogy and Rainforest Foundation Norway earlier this year showed that under current biofuel targets, global demand for palm oil will increase by six times over the next decade.
Deforestation in palm oil hotspots such as Indonesia have been linked to the decline of wildlife including orang-utans, and the persecution of native people.
There is also a considerable climate risk from a sixfold inflation in palm oil demand, with 7 billion tonnes of CO2 emissions predicted over the next two decades in that scenario – more than the annual emissions of the US.
The EU has agreed to phase out biofuels linked with deforestation and habitat destruction, but not until 2030.
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