The Senate has rejected the government's emissions trading scheme a second time, giving Labor a trigger for a double dissolution election.
The Senate voted 41 to 33 to reject legislation setting up the carbon pollution reduction scheme.
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The vote, taken at 11.47am (AEDT) on Wednesday, followed more than 40 hours of debate in the upper house.
Liberal senators Sue Boyce and Judith Troeth voted with the government, but their support was not enough to give Labor a majority.
The crossbench, including the five Australian Greens, voted with other coalition senators.
Prime Minister Kevin Rudd had wanted the deal - negotiated with ousted Liberal leader Malcolm Turnbull - passed before the UN climate change summit in Copenhagen, starting on December 7.
New leader Tony Abbott, who was elected on Tuesday, immediately withdrew Opposition support for the bills.
"The Senate has delivered a big win to the people of Australia who have been saved from a massive new tax that would have been foisted on them without proper scrutiny," Mr Abbott told reporters after the vote.
Mr Abbott has said it would be "folly" for Australia to establish an emissions trading scheme before the United States had settled on its model and before Copenhagen.
Family First senator Steve Fielding, who voted against the government, said the vote was a win for commonsense.
"Australian families and business will breathe a sigh of relief today knowing that they won't be slugged with a massive tax," he said in a statement.
One small step in the right direction now the information and investigation of the E-mails and whateva happens nest should be prosecutions ... time will tell