Some, such as SA Liberal Tony Pasin demanded direct intervention to lower gas prices while others said the government should reduce emissions using cheap international carbon permits.

There was support for Dr Finkel's other recommendations - a three-year notice of closure for existing power stations and a requirement that new large-scale renewable energy projects have backup generation or storage capacity but the prospect of doing anything at all regarding a CET is now in serious doubt. Both Nationals and Liberals spoke against the plan, despite it promising to lower electricity prices and the government yet to do any design work.

Too premature to write off policy change

Energy Minister Josh Frydenberg said afterwards it was too premature to write off any policy change and there were compelling arguments for a CET which, he said, was not a tax on coal nor a price on carbon.

One source who supports a CET said of the 22 who spoke against, 11 were hard core while the other 11 were critical but not entrenched.

Prime Minister Malcolm Turnbull. Andrew Meares

"And 22 out of 103 (members of the Coalition is a small percentage," he said. Another said it was the best discussion of a complex topic he had witnessed in the party room.

Labor leader Bill Shorten said the Coalition was unfit to govern and Mr Turnbull's leadership was weakened.


"It would appear that chaos is the order of the day," he said.

"Just when Australians thought that the climate change wars were over, it looks like a new civil war in the Liberal Party has taken it up to a new level."

Former prime minister Tony Abbott can't keep his head down. Andrew Meares

"What Australians want is national policy certainty so we can have lower electricity prices."

With Mr Abbott leading a determined group of MPs who believe the government should either do nothing at all, or adopt a scheme giving so-called clean coal equal treatment to renewable energy, senior Liberals said Mr Turnbull cannot risk losing control of the policy process to his nemesis.

Mr Abbott, who had not read the Finkel report, slammed the CET on Monday as a "magic pudding" and "a tax on coal".

This was flatly rejected by senior ministers including Finance Minister and leading conservative Mathias Cormann, Foreign Minister Julie Bishop and Nationals leader Barnaby Joyce.

"What Australians want is national policy certainty so we can have lower electricity prices." Alex Ellinghausen


"The biggest cost ... tax that we could impose on consumers and taxpayers will be to do nothing," Senator Cormann said, adding that without policy certainty, prices would continue to go "up and up and up".

Doing nothing no longer an option

Mr Joyce agreed the business as usual was no longer an option and Australia must meet its international obligations to reduce emissions.

Support from the likes of Senator Cormann and Mr Joyce will be vital over coming weeks if Mr Turnbull is to prevail.

Before Tuesday's meeting, one senior minister claimed 95 per cent of the party was behind Mr Turnbull and Energy Minister Josh Frydenberg and there was an overwhelming desire to avoid a repeat of the climate policy-induced civil war of 2009 that ended Mr Turnbull's leadership and tore the party apart. But this was not borne out in Tuesday's special party room meeting.

Mathias Cormann said that without policy certainty, prices would continue to go "up and up and up". Andrew Meares

In a report to government on Friday, Dr Finkel recommended a CET be adopted after 2020 to ensure a stable transition towards cleaner energy sources while Australia still met its Paris agreement of reducing emissions by 26 per cent to 28 per cent on 2005 levels by 2030.

A CET with bipartisan support would restore investor certainty to a volatile and dysfunctional energy market, resulting in lower prices. The most expensive option in terms of power prices would be to do nothing, Dr Finkel said.


A CET would stipulate that a set percentage of power each year be generated using low emissions sources. At a minimum these would include renewable energy, gas and coal using carbon capture and storage technology, if it can be developed, and for which certificates, similar to the Renewable Energy Target certificates, would be issued.

'A hollow gesture'

On Tuesday, Labor resolved to oppose the government trying to allow the Clean Energy Finance Corporation to invest in carbon capture storage technology, saying it was "nothing but a hollow gesture to appease extreme right MPs".

Under a CET, existing generators would see out their natural lives and coal use would only fall slightly under a CET.

Dr Finkel did not recommend a baseline but modelled a scenario in which a low emissions source would be defined as producing a maximum 600kg (0.6 tonnes) of pollution per megawatt hour of energy.

Even so, only an energy source with a baseline of zero, such as wind, solar, or hydro, would receive a full certificate for each MWh of electricity they generate.

Raising the threshold to 750kg or 800kg CO2/MWh to allow High Efficiency, Low Emissions (HELE) coal power stations into the running for clean energy certificates would only see them earn a tiny fraction of a full certificate.

Barnaby Joyce agreed the business as usual was no longer an option and Australia must meet its international obligations to reduce emissions. Alex Ellinghausen


If clean coal were to be given the same treatment as renewable energy, it could not be done under the CET.

Mr Turnbull stressed to his party room that the CET did not prohibit the construction of new coal fired power stations.

Mr Abbott claims the CET is "effectively a tax on coal" because cleaner energy sources are effectively subsidised, much in the same way as renewable energy is under the current Renewable Energy target.

A clearly irritated Mr Joyce said "Mr Abbott is entitled to his opinion".

Mr Joyce said while it was not a tax on coal, "there is an advantage" to those technologies below the baseline.

The energy sector and the experts believe even if coal is included in the scheme, there is no interest in building a coal fired power station, if only because they are more expensive then renewable energy.

There was further backing for Dr Finkel's recommendations on Tuesday when Moody's Investors Services said most of Australia's energy utilities would become a better bet for investors to lend to them.