The Australian Senate rejected legislation to repeal the country's carbon tax on Thursday because it did not guarantee savings would be passed onto consumers, but amended legislation could still pass as early as next week.
Mining magnate Clive Palmer's Palmer United Party (PUP), which holds the balance of power in the Senate, had said it would pass the legislation but withdrew support at the last minute.
"We're very clear: we support the removal of the carbon tax, but we don't support the removal of the carbon tax if it means it won't flow on to normal people," Palmer told reporters.
Australia has among the world's highest carbon emissions per capita due mainly to its reliance on coal-fired power stations.
Conservative Prime Minister Tony Abbott, once a climate-change sceptic, made the abolition of the carbon tax a centrepiece of his 2013 election, arguing it financially burdened industry and consumers and did little to cut emissions.
The last minute collapse in support from Palmer reflects the difficulty Abbott faces in shepherding his agenda through a potentially volatile parliament that his Liberal-National coalition does not fully control.
Last month Palmer, a colourful mining magnate, stood beside former U.S. Vice President Al Gore in Canberra and said he would support the repeal but only with numerous conditions unpalatable to the government.
Chief among them was that Australia create a new emissions trading scheme in place of the one about to be repealed, which would have a zero price on carbon until Australia's main trading partners adopted similar legislation.
The carbon tax repeal legislation will now be sent back to the lower house of parliament for a fresh vote, dragging out the process and prolonging uncertainty in markets eager for a long-term answer on carbon pricing.
The new bill will remove the obligation on 348 of Australia's biggest companies to pay A$24.15 for each tonne of CO2 they emit and repeal legislation that would have launched an Emissions Trading Scheme in 2015.
The government plans to replace the carbon tax with a A$2.55 billion ($2.40 billion) Emissions Reduction Fund that will pay big emitters to cut carbon levels, but Palmer has dismissed that plan as "hopeless", casting more doubt on the path forward. ($1 = 1.0625 Australian Dollars) (Reporting by Matt Siegel)