The Bank used a discussion document on Thursday to say Palm Oil had been recommended as an alternative - despite environmental concerns over sustainability - for the production of new £20 notes due to enter circulation in 2020.
Animal rights campaigners and vegans were among those to speak out last year, starting a petition when it emerged the Bank's new £5 notes contained a small amount of tallow - derived from beef suet.
The polymer - or plastic - note is gradually replacing old-style paper notes as they are more robust and much harder to counterfeit.
While the Bank said in February it would not be replacing the controversial fivers, or altering its plans for the launch of polymer £10 notes later this year because of the costs involved, it has been working with note suppliers to identify alternatives.
They formed the view that palm oil would be best, the Bank said, though it admitted concerns from a separate independent report it commissioned that production of the vegetable oil has been linked to rainforest destruction. Its is used in the production of hundreds of foods, including chocolate, and biofuels.
Commenting on the concerns, the consultation document said: "These can be potentially mitigated by the Bank's suppliers acquiring additives that meet an associated certification standard for environmentally sustainable production."
It was also minded to take account of any extra costs and sought responses by 12 May.
The document added: "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."
Dr Emma Keller, agriculture commodities manager at World Wildlife Fund, said: "WWF is encouraged to see the thorough and extensive review that the Bank of England have conducted in response to the animal fat issue in new bank notes.
"Palm oil has benefits as it produces more oil per land area than any other equivalent oil crop. 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."
Friends of the Earth campaigner Kierra Box said: "It's good that the Bank is consulting, but surely it cannot be beyond the means of Thread needle Street's old lady to produce a bank note for the 21st century that doesn't use controversial traces or additives."