Mr Palmer's plan, which hinges on an ill-defined amendment to move to an emissions trading scheme in the future, torpedoes the government's signature policy to replace Labor's price on carbon with a scheme that pays polluters to cut emissions.

The Fairfax MP first signalled in April that he intended to vote down the $2.5 billion direct action fund, declaring the policy ''dead'' and a waste of money. He confirmed that stance on Wednesday and the government has not indicated how it will either salvage elements of the policy or, in its absence, meet Australia's international commitment to reduce carbon emissions by 5 per cent on 2000 levels.

Climate lawyer Martijn Wilder, a partner at legal firm Baker & McKenzie, said that with Labor, the Greens and the Palmer United Party all opposed to direct action, it was a ''million-dollar question'' what the government would do to meet its international obligations on climate change.

''Maybe the government has some alternative plan, but I can't see it,'' Mr Wilder said. ''From where I sit, based on what has been articulated, there will be a suite of measures to help fund renewable energy investment but there'll be no measures to cap emissions.''

Mr Wilder said it would be simpler for Australia to use the existing legislation for an ETS to move immediately to a floating price and ''get on with it'' rather than spending another election cycle negotiating an alternative. That position was backed up by The Climate Institute, which said on Thursday that the five trading partners singled out by Mr Palmer - the US, Japan, the EU, Korea and China - were all already implementing carbon market schemes at national or regional scales.

Mr Palmer's stance will make it difficult for the government to implement any direct action measures that will require legislation, even though $1.1 billion has been set aside in the budget for the scheme and a further $1.4 billion can be committed under contract.

Government sources were briefing on Thursday that the government believed it would still be able to implement some parts of the package through regulation.

However, some key elements including future safeguards to ensure polluters do not emit more than a predetermined emissions baseline now appear to be in doubt.

But despite the uncertainty, the Greens on Thursday said there was optimism after Mr Palmer's announcement saved key parts of the previous government's clean energy package, including the Clean Energy Finance Corporation and the renewable energy target.

MPs will now be looking to push Mr Palmer and his senators to support the retention of the Australian Renewable Energy Agency (ARENA) and change their stance on when an ETS could begin.