Malcolm Turnbull will face the verdict of his colleagues in a tense party room meeting on Tuesday, after effectively abandoning the government’s signature energy policy in what could be a fruitless attempt to stay ahead of a full blown leadership crisis.

The prime minister announced on Monday the national energy guarantee – the policy the government has argued for months is necessary to create investment certainty in Australia’s energy sector – had been shelved indefinitely because he could not proceed with it in the face of opposition from within his own party.

At an extraordinary press conference that called into question the prime minister’s authority over his government, Turnbull also unveiled “last resort” divestiture powers to break up large energy retailers as part of a suite of measures designed to reduce power prices.

That move has triggered white-hot fury among the business groups that had lined up publicly for months to support the Neg.

The power prices fix, pulled together in haste as the prime minister’s enemies circled, and including a divestiture proposal that the Australian Competition and Consumer Commission did not recommend in its recent inquiry into the power sector – will go to the Coalition’s backbench committee on Tuesday before going to the party room meeting afterwards.

Turnbull’s Neg backflip is a submissive gesture to conservatives now engaged in open destabilisation of his leadership, and it has angered some moderates who believe the prime minister should have called Tony Abbott’s bluff, ploughed on with the policy, and allowed the former prime minister to cross the floor.

Ebullient Nationals were also claiming victory after the Turnbull backdown. Claims from various Nationals that the new power package would trigger new coal-fired power investments were followed by a car-crash interview from the party leader, Michael McCormack, on Sky News late on Monday.

Deputy PM @M_McCormackMP claims Australia is ‘more than meeting’ the Paris Agreement emissions reduction target of 26%.



‘It’s based on the data that is produced by those people who measure emissions.’



MORE: https://t.co/PjVH6AcKVB #speers pic.twitter.com/wtBlBMmZbS — Sky News Australia (@SkyNewsAust) August 20, 2018

McCormack declared the Neg’s emissions reduction target did not need to be legislated, even though it technically remains government policy to legislate it. He said Australia would meet its obligations under the Paris agreement without intervention.

Asked for a factual source to back up that contention, McCormack said he was aware of it courtesy of “people who measure these things”.

The Nationals leader then said the issue of legislating the Neg target could be revisited perhaps in the future, when the government enjoyed a 10-seat buffer rather than the current lower house majority of one.

With the government in turmoil and another party room reckoning looming on Tuesday – all eyes in Canberra are on the home affairs minister, Peter Dutton, and his backers, with concerns the prime minister could face a challenge.

It emerged on Monday that the LNP president Gary Spence had urged MPs in the state to unseat Turnbull and replace him with Dutton – a backroom intervention that has infuriated Liberals in Queensland and beyond.

The treasurer, Scott Morrison, used a television appearance on Monday night to urge colleagues to stay the course. He noted there had been a “pretty torrid decade, this last one in parliament, and we’ve had a great period of stability over the past three years”.

Morrison told the ABC he had spoken to Dutton in question time: “And he said that his position hadn’t changed and he was fully supportive of the prime minister and the government’s policies.”

Asked to explain the persistence of leadership speculation around the government, Morrison said: “I don’t know because I am not part of it. I don’t know.

“I am not participating in any of this. You would have to talk to people who are participating it.”

Asked by the conservative commentator Andrew Bolt on Monday night whether Dutton would be a better leader of the Liberal party, longtime Abbott ally Kevin Andrews told Sky News: “I’m not going to get into speculation about who would be an effective leader in the future.”

While some conservatives admit privately Dutton is not the answer to the government’s political woes, and changing leaders in the shadow of an election would only create a new cycle of problems – the internal dynamic remains febrile, and Turnbull is weakened by the torrid events of the past fortnight, some insist critically.

Adding to pressure building in the parliament, a television news report on the Ten Network on Monday night revealed that Dutton could have constitutional problems due to pecuniary interests over his wife’s childcare centres – a contention Dutton rejects.

Both the deputy Liberal leader Julie Bishop and Dutton’s conservative colleague, Mathias Cormann, made public statements of support for Turnbull on Monday. “Malcolm Turnbull is the leader of the Liberal party and will take us to the next election,” Bishop told 2GB.

The Labor leader, Bill Shorten, meanwhile, castigated Turnbull for his decision to retreat on the Neg. Shorten declared Turnbull was not the leader the nation needed.

“Real leadership is about fighting for the principles you believe in,” Shorten told reporters. “Real leadership is about not always giving in to your enemies every time they disagree with you”.

“Real leadership should be about putting lower pollution and lower prices at the forefront of energy policy. The problem is with Mr Turnbull, every time people who don’t like him and his party disagree with them, he gives up.

“He is truly a white flag prime minister.”

The Labor states the government needs to implement the Neg made similar observations. The Victorian energy minister, Lily D’Ambrosio, said: “I’m not sure Malcolm Turnbull knows what the Neg is anymore – or it if still exists”.

The ACT’s climate change minister, Shane Rattenbury, said the policy was done: “The Neg is dead.

“It was hailed as a policy to address the trilemma of prices, reliability and emissions reduction. Instead, federal energy policy is being determined by the worst, climate change denying elements of the Liberal party.

“The federal government has now completely capitulated on emissions and climate change, and abandoned the Paris climate change commitments.”