The Bank of England is mulling plans to replace the animal fat in its polymer bank notesto assuage complaints from vegans and religious groups.

The Bank, however, risks running straight into another row, because the most practical alternative to animal fat, it says, is palm oil – and that is likely to spark protests from environmentalists unless it can show the new alternative is sustainably sourced.

Revelations last year that the new plastic £5 note contained animal-derived additives sparked anger and boycotts and now the Bank has launched a consultation to gauge public opinion over what materials to use for the next £20 note and future reprints of the £5 and £10 notes.

It decided earlier this year not to withdraw plastic £5 banknotes from circulation and said it would also push ahead with production of the new £10 polymer note featuring Jane Austen, which is to be issued in September.

But the Bank has postponed signing a contract for the production of the plastic £20 note, which is to be issued by 2020 and has been working with De La Rue and Innovia Security, the potential suppliers of the polymer material that would be used for future bank notes, to assess alternative options to animal-based products, such as palm oil or coconut oil. The Bank also commissioned a report on the environmental impact of a range of additives from a consultancy firm, Efeca.

On Thursday the Bank revealed that De La Rue and Innovia had concluded that “the only practical alternative to animal-derived additives are additives derived from palm oil” and that was “consistent with advice received from Efeca”.

It wants a decision on what to make new £20 notes out of by the summer and has called for people to get their views in by 12 May.

“The Bank will reflect upon the various religious, ethical and environmental considerations raised by the inclusion of animal-derived additives and palm oil as the alternative,” it said.

Threadneedle Street added it was conscious of the potential environmental costs of using palm oil, which was the fourth highest agricultural product in terms of impact on global deforestation, according to Efeca. Some 8% of the global deforestationbetween 1990 and 2008 was a result of palm oil production.

The Bank said it had also consulted with WWF on using palm oil and was told by the conservation charity that because the palm oil crop is the most efficient source of vegetable oils, “it could be the least environmentally damaging source when produced sustainably”.

“However, non-sustainable production of palm oil (and other vegetable-based oil crops) can lead to destruction of forests, with significant negative impacts on wildlife, as well as on the local indigenous human populations,” the Bank’s new report added.

Time for weighing up the evidence and public views is tight, because the launch of a new note can take four years or more.

“Whether or not to use polymer substrate produced using animal-derived additives in the new £20 polymer note is therefore an urgent decision that must be taken in Summer 2017 ahead of planned pre-production trials,” the Bank’s report noted.

WWF said it was encouraged to see the Bank’s “thorough and extensive” review in response to the animal fat issues but it urged the Bank to proceed carefully if it moved to palm oil.

“Palm oil has benefits as it produces more oil per land area than any other equivalent oil crop,” said Emma Keller, agriculture commodities manager at WWF.

“Worldwide demand is expected to double again by 2050 but this expansion comes at the expense of human rights and tropical forest – which forms critical habitat for a large number of endangered wildlife – unless it is sustainable. People don’t want the bank notes in their pocket to come with such a high environmental cost. The Bank must only source RSPO (Roundtable on Sustainable Palm Oil) certified sustainable palm oil or none at all.”