The Abbott government believes it's winning the war on the carbon tax, with Labor deciding not to oppose the cancellation of auctions for carbon permits.
Environment Minister Greg Hunt has signed a declaration to stop the auctions but it could have been overturned had Labor backed a Greens disallowance motion in the Senate.
But caucus agreed on Tuesday it would not make sense to proceed with the auctions, given market uncertainty about carbon pricing and little interest from business to engage in the process.
The environment minister leapt on the decision, labelling it "the moment" Labor's support for the carbon tax began to crumble.
"This is an important first step today," he told reporters in Canberra on Tuesday.
"It is the ALP beginning to crab walk away from the carbon tax which they know the Australian people rejected."
The government's legislation to repeal the carbon tax has stalled in the upper house, and is unlikely to pass before a less hostile Senate takes over in July.
Prime Minister Tony Abbott challenged opposition leader Bill Shorten to go further and order his senators to stop opposing the repeal bill.
"Go the whole hog, stop the strike in the Senate and scrap this job destroying tax," he said.
Labor denied it was walking away from its commitment to an emissions trading scheme, accusing the government of trying to trick people into thinking the opposition had changed its policy.
"The voluntary auction would have no impact on the introduction of Labor's ETS," opposition spokesman Mark Butler said in a statement.
But the government claims it's impossible to have an ETS without the auctions, and Labor is effectively dismantling the very mechanism for collecting the carbon tax.
Carbon permits are bought and surrendered by companies to pay their carbon tax bills, and the Clean Energy Regulator is required by law to hold periodic auctions.
The regulator told a Senate estimates hearing on Monday there was no market interest in the purchase of future carbon units.
Proceeding with an auction would be fruitless and costly, it said.
