The Abbott government was preparing to ram its direct action legislation through the Senate and hoping to pass the laws to set up a $2.55 billion scheme late on Thursday night.
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With the support of cross bench senators, the government passed a motion forcing the Senate to continue sitting until there was a vote to enact its replacement for Labor's carbon tax.
The Palmer United Party and independents Nick Xenophon and John Madigan had all indicated they would vote to pass the scheme, which will draw on the budget to pay major polluters to reduce their emissions.
It came as Environment Minister Greg Hunt declared on Wednesday that emissions trading "is never coming back in any form" despite the government agreeing to allow the Climate Change Authority to investigate an ETS in order to secure the support of PUP-aligned senators.
Mr Hunt said it is "crystal clear" the government will never implement an ETS, and tasking the authority it planned to abolish to review one was a necessary political gesture to pass direct action.
The government's language is at odds with that of PUP leader Clive Palmer, who declared he was keeping an ETS "on the agenda".
The Palmer camp believes the scope of the CCA review, which will take in action by other countries, what a future Australian scheme might look like, and Australia's emissions reduction targets in the post 2020 period, will put pressure on Prime Minister Tony Abbott as the world moves towards a new global deal on climate change in 2015.
Labor and the Greens have lashed the deal which they say tears down emissions trading in Australia.
On Thursday night, Lisa Singh, Labor's environment spokeswoman in the Senate, was to tell the chamber direct action was "a program built on begging big polluters not to pollute".
"It addresses the problem of climate change with all the sincerity you'd expect of someone who once declared it was crap," she said.
Direct action was set to pass amid doubts about whether $2.55 billion will buy all the abatement the government needs to meet Australia's emissions reduction target of 5 per cent on 2000 levels by 2020.
Amendments moved by Senator Xenophon will force the government, in conjunction with the clean energy regulator, to set baselines emitters cannot exceed that are in line with meeting Australia's international obligations.
But safeguards to ensure polluters do not exceed a predetermined emissions baseline will not come into force until 2016.
While Senator Xenophon's amendments state that there will be penalties for rogue emitters, it is still unclear what those penalties will look like.
Mr Hunt has said any penalty scheme will be "revenue neutral" leaving open the possibility that businesses that do not meet their obligations will have to purchase domestic credits.
