* EU law sees phase-out from 2030 of harmful biofuel feedstock
* Commission says palm oil production pushed more into forests
* Producers Indonesia, Malaysia threaten challenges
BRUSSELS, Feb 11 (Reuters) - The European Commission has concluded that palm oil cultivation results in deforestation and its use in transport fuel should be phased out, but environmentalists criticized it on Monday for allowing a number of exceptions.
The Commission published its proposed criteria for determining what crops caused harm at the weekend, following a law passed by the European Union last year to end the use of feedstocks in biofuels that damage the environment.
Under the new EU law, the use of more harmful biofuels will be capped at 2019 levels until 2023 and reduced to zero by 2030.
The law has caused an uproar in palm oil producing countries. Indonesia has threatened to challenge it at the World Trade Organization, while Malaysia is looking into restricting imports of French products over French plans to remove palm oil from biofuel in 2020.
The Commission proposal, designed to become law after four weeks of feedback, said 45 percent of the extra land used for palm oil production since 2008 had previously been forested, compared with 8 percent for rival oil crop soybeans and 1 percent for sunflowers and rapeseed.
However, it also said producers who could show they had intensified yields may be exempt. It could then be argued that their crops cover demand for biofuel and for food and feeds, without needing expansion onto non-agricultural land, such as forests.
Such higher-yielding crops would be considered as less harmful if they, for example, are small holdings or entail cultivation of food or feed on "unused land."
Bas Eickhout, a Greens EU lawmaker who has been active on the file, said the exemptions were excessive and would allow large producers to wreak destruction.
"The battle is not over... (We) still have time to close these loopholes and clamp down on destructive palm oil entering the EU," he said.
Campaign group Transport & Environment said loopholes meant that Europe could keep using the same amount of palm oil in diesel that it does today.
An exemption for small-holdings made no sense, it said, as there was no link between size of plantation and deforestation risk and because farmers of small lots typically sold to mills controlled by large corporations.
It also said it deplored the Commissions exemption for soy. (Reporting by Philip Blenkinsop Editing by Frances Kerry)