On Friday the Assembly did agree to impose a 30 euro surtax on top of an existing 104-euro levy, or one-tenth of the surtax approved by the senate.
Environmentalists say that swathes of rain forest are being chopped down to make way for lucrative palm tree plantations, whose oil is used to make, widely consumed food and other items.
The senate measure would have raised the tax -- dubbed the Nutella tax because the commodity is used in the popular chocolate spread -- to 500 euros in 2018, 700 in 2019 and 900 from 2020, while the lower house schedule would stay at one-tenth of those levels, rising to 90 euros in 2020.
Indonesia had decried the French senate's proposed surtax as "arrogant" and "excessive" and a move that could threaten bilateral ties.
The greatly-reduced surtax is "more realistic," said Barbara Pompili, a junior minister responsible for biodiversity issues.
It was the third time since 2012 the tax has come up before the parliament.
Palm oil is taxed much less than other edible oils such as olive oil.
While France imports only 150,000 tonnes of palm oil of the total world output of 62 million, Indonesia and Malaysia had expressed fears that other consumers would follow its lead if it imposed a sizeable green surtax.