Malcolm Turnbull has caved in to rebels in coalition ranks and retreated from plans to legislate climate change targets pledged by Australia under the Paris agreement.
Facing a serious threat to his leadership, the prime minister has also followed through on a promise to cap power prices and to give the competition watchdog greater powers to monitor and if necessary break up energy giants.
Outlining a major change to his National Energy Guarantee on Monday, Mr Turnbull said it was clear legislation which set an emissions target would not pass the parliament.
"In politics you have to focus on what you can deliver," Mr Turnbull told reporters in Canberra.
A group of up to 10 climate sceptics led by Tony Abbott had threatened to vote against the NEG if it included any reference to a 26 per cent emissions target.
Mr Turnbull initially claimed the legislation could not be brought before parliament because he could not secure bipartisan support from the opposition.
However, just hours later he acknowledged the real issue lay in his own party room.
"We seek to ensure that legislation that we introduce has the support of sufficient (numbers) of our party room to enable it to be carried on our own numbers," Mr Turnbull told parliament.
Labor leader Bill Shorten said the opposition was willing to work with the government, but the prime minister had decided instead to yield to his internal enemies rather than fighting for lower pollution and power prices.
"He is truly a white flag prime minister," Mr Shorten said.
Mr Turnbull confirmed a legislated carbon emission target remained government policy, but would be shelved until there was sufficient lower house support.
Deputy Prime Minister Michael McCormack told Sky News the target would still be reached based on the current path of renewable energy investment.
"It is based on the data that is produced by those people who measure emissions," he said.
The new government plan involves a "default market offer" to 1.2 million electricity consumers currently on standing offers.
Mr Turnbull expects the default price to save households up to $416 a year and small businesses as much as $1457.
The Australian Competition and Consumer Commission will also be given extra powers to force energy providers to sell assets if they have too much market power.
Mr Turnbull described these as "powers of last resort".
Asked whether the powers were aimed at preventing the closure of AGL's Liddell coal-fired power station in NSW, Mr Turnbull said: "I can't speculate about that."
"Directions of this kind could be used to keep a power station going and, in fact, there are many electricity markets in the world where there are rules that operate exactly like that."
The state and territory governments are being consulted on the reliability aspect of the policy, which Mr Turnbull wants in place by next July.
But ACT Energy Minister Shane Rattenbury has declared: "The NEG is dead."
