Opposition senators have defeated the Australian government's plan for an ambitious emissions trading scheme.
Conservative senators joined with Green and independent senators to defeat the Carbon Pollution Reduction Scheme set to start in 2011.
Under the scheme, about 1000 of Australia's biggest polluting companies would have had to purchase carbon permits, covering 75% of national emissions.
The measure was the centrepiece of the government's environment plans, and would have cut greenhouse gas emissions by 5% over the next 10 years, the BBC reports.
But opposition senators who control the upper house feared the legislation would harm the country's mining sector.
The government can re-introduce the legislation after three months.
Climate Change Minister Penny Wong confirmed after the Senate defeat by 42 votes to 30 that the government would seek to do this.
However, if the government is defeated again it could trigger a general election.
Business groups say the scheme would delay economic recovery and lead to job losses. The environmental lobby, meanwhile, believed that the targets set by the legislation were not tough enough.
Australia has the highest per capita emissions in the developed world and coal is its biggest export.
Under the plan, due to be introduced in July 2011, a one-year fixed price period would be introduced for the first year, with carbon permits costing $A10 per tonne, followed by a floating price until July 2013.
Prime Minister Kevin Rudd had earlier said that the range of the emissions reduction target could be increased up to 25% of 2000 levels if other nations agreed similar targets.
The previous target was to reduce emissions by between 5% and 15% of 2000 levels by 2020.