Senior Abbott government members are increasingly confident a deal to pass its direct action climate change policy will be reached before Christmas after Clive Palmer appeared to soften his party's hardline position on the scheme.
Australia has been without a climate change policy since July, when it became the first country to abolish a carbon price and key crossbench senators stressed their opposition to direct action on the grounds it was expensive and would fail to cut greenhouse gas emissions.
The central plank of direct action is an emissions reduction fund - $2.55 billion drawn from the budget that would be used to pay polluters who could deliver emission cuts at lowest cost.
At the time, the Palmer United Party said it would support the fund only if the government backed its proposal for an emissions trading scheme that would start when Australia's major trading partners had similarly aggressive climate policies.
But a government source told Fairfax Media that a "bridging agreement" with the Palmer United Party that did not include an emissions trading scheme trigger - which it rejects - was now under consideration.
And Mr Palmer shifted his position, saying he wanted the government to promise to investigate his trading scheme in return for his party's support.
"As a first step we have to get the government to commit to a detailed analysis of that proposal and report back to parliament," he told Fairfax Media.
"They haven't rejected that yet. If they come up with a positive response on that we will support direct action."
Mr Palmer has previously described direct action as "hopeless", saying the policy did not make economic sense and may not have any environmental effect. His concession will add to his reputation as an unpredictable negotiator who changes policy positions. In a chaotic two weeks in July, PUP blocked the repeal of the carbon tax before allowing its passage a week later.
The government needs the support of four PUP-aligned senators and independents Nick Xenophon and John Madigan to pass the scheme. Any deal that is reached with the crossbench will then need to be signed off by Prime Minister Tony Abbott.
Environment Minister Greg Hunt said the government was working constructively with the crossbench and, while it was too early to make predictions, he hoped an agreement would be reached.
He lashed Labor and the Greens, who he said had not shown the same willingness to negotiate even though failure to pass the emissions reduction fund would jeopardise land-based carbon reduction projects they had supported.
Environment and farming groups have been pressuring Labor, the Greens and crossbenchers to make sure the carbon-farming initiative - which funds tree-planting and soil-carbon projects - survives and companies involved with the program do not collapse.
"It is inexplicable that the ALP and the Greens would deliberately put at risk over 170 indigenous and other land sector projects by opposing the carbon-farming initiative and fund," Mr Hunt said.
"Thankfully the crossbenchers have been much more constructive."
Senator Xenophon has demanded the government impose penalties on big emitters that increase their emissions and allow the use of international carbon credits.
He said he was open to an investigation of the Palmer proposal. "If there are alternative ways to advance a good environmental goal at the lowest possible price we should look at it," he said.
But he said support for his amendments was "the minimum that's needed".
Mr Hunt would not foreshadow the response to any crossbench amendments, but stressed the government was not considering reintroduction of a tax or an emissions trading scheme.
The negotiations over direct action come as the government also seeks to strike a deal with Labor on the renewable energy target. The ALP has rejected the government's starting position, which would slash the target by more than a third - from 41,000 gigawatt hours of baseline power from renewable sources by 2020 to about 26,000.
Talks between Mr Hunt and Labor energy spokesman Gary Gray are moving towards a compromise that is likely to see the target reduced to something in the mid-thirties.