The Italian chocolate makers launched an advertising campaign to defend their use of the oil, which others in Italy are boycotting, Reuters reported.
Using substitutes like sunflower oil would change the character of the hazelnut and chocolate spread, Ferrero said. Palm oil contributes to Nutella's smooth texture and shelf life.
"Making Nutella without palm oil would produce an inferior substitute for the real product, it would be a step backward," Ferrero's purchasing manager Vincenzo Tapella told Reuters.
A change to more expensive substitutes would cost Ferrero an extra $8m (£6.6m) to $22m (£18m) annually for the 185,000 tonnes it uses every year.
In May, the European Food Safety Authority (EFSA) said palm oil generated more of a potentially carcinogenic contaminant than other vegetable oils when refined at temperatures above 200 degrees Celsius.
The EFSA didn't recommend people stop eating it, however, and said further study was needed.
The European Commission is now reviewing the matter, and the spokesperson for health and food safety, Enrico Brivio, said regulatory guidance would be issued by the end of this year.
Following pressure from activists, Italy's largest supermarket, Coop, has already started to boycott palm oil as a "precaution" in its own-brand products, and the country's largest baker, Barilla, has also eliminated it.
Ferrero said it uses a safe process of refining the oil at a temperature just below 200 degrees Celsius to minimise contaminants – a process that takes longer and costs 20 per cent more, the company told Reuters.
A spokesperson for the Food and Drink Federation (FDF), the UK's leading food industry body, said, "The industry is aware of proposed new EU regulatory limits and is engaged in discussions with the authorities."
"The food industry remains fully committed to continuing the work to find appropriate measures to reduce the level of these process contaminants in fats and oils as quickly as possible."
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