Lush tropical rainforest once covered almost all of Indonesia's 17,000 islands between the Indian and Pacific oceans. And just half a century ago, 80 per cent remained. But since then, rampant logging and burning has destroyed nearly half that cover, and made the country the world's third largest emitter of greenhouses gases after the US and China.

Indonesia still has one-tenth of the world's remaining rainforests, a treasure trove of rare plant and animal species, including critically endangered tigers, elephants and orang-utans. However, it is destroying its forests faster than any other country, according to the Guinness Book of Records, with an average two million hectares disappearing every year, double the annual loss in the 1980s.

It is that frenzied rate of deforestation that has propelled Indonesia, home to 237 million people, into its top-three spot in the global league table of climate change villains. According to a government report released last month, the destruction of forests and carbon-rich peatlands accounts for 80 per cent of the 2.3 billion tons of carbon dioxide emitted in the country annually.

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The situation is partly a legacy of the 32-year rule of the dictator Suharto, during which Indonesia's forests were regarded purely as a source of revenue to be exploited for economic gain. Suharto, who stepped down in 1998, handed out logging concessions covering more than half the total forest area, many of them to his relatives and political allies.

Although the current Indonesian government, under President Susilo Bambang Yudhoyono, is committed to reducing deforestation and CO2 emissions, not much has changed on the ground. Poor land management is compounded by lawlessness and corruption, and illegal logging is widespread. According to one official estimate, the latter is responsible for the loss of 10 million hectares of forest.

Legal logging, too, is conducted at unsustainable levels, thanks to soaring demand from a rapidly expanding pulp and paper industry, in a country struggling with high levels of poverty.

The recent government report forecast that carbon emissions, which have risen from 1.6 billion tons in 1990, will increase to 3.6 billion by 2030, a leap of 57 per cent from today's level. The main reason is logging and clearing of forests for agriculture and industrial plantations, including oil palms. The government granted permission last year for two million hectares of peatland to be cleared for oil palms.

The rapid spread of oil palm plantations, particularly on Sumatra and Borneo islands, is threatening the orang-utan's forest habitat and hastening its extinction, according to conservationists.

Clearing land releases into the atmosphere the carbon stored in trees and below ground, either during burning or when the timber decomposes. Forest fires – regarded as a cheap and easy way of clearing forest – are deliberately lit by farmers as well as timber and oil palm plantation owners, and occur regularly on Sumatra and Borneo during the dry season.

Indonesia supports the UN's Reduced Emissions from Deforestation and Degradation (REDD) initiative, welcoming the idea of being paid to conserve its forests. However, some observers question whether the carbon credits it would receive will be priced high enough to make the scheme worthwhile.

At present, Indonesia accounts for 8 per cent of global carbon emissions, although the archipelago represents barely 1 per cent of the world's landmass. It still has the third largest tracts of tropical rainforest, after Brazil and the Democratic Republic of Congo, despite losing one-quarter of its forest cover between 1990 and 2005.