A plan to allow Australia's renewable energy agency to invest in non-renewable technologies has been shot down in the Senate.
The Morrison government wanted to expand the remit of an agency known as ARENA to allow it to invest in low-emissions projects such as carbon capture and storage, green steel and hydrogen.
But the Greens, Labor and various crossbench senators teamed up to veto the changes.
"As a result, the government cannot use public money to fund coal and gas projects through the renewable energy agency," Greens leader Adam Bandt said.
"It's a really big win for the climate and it's a huge blow to this coal and gas-fired government."
One Nation leader Pauline Hanson abstained from the vote, allowing the disallowance motion to pass.
It is understood Senator Hanson did not like the idea that gas companies who paid no tax in Australia but handed dividends to foreign shareholders stood to benefit from the expanded investment remit.
Pro-coal Labor renegade Joel Fitzgibbon railed against the result, describing it as "the victory I did not want".
Meanwhile, Nationals leader Barnaby Joyce is shaping up for a separate fight with the Liberals over climate change.
Mr Joyce views the march towards a target of net zero emissions by 2050 from the perspective of coal workers.
"Our nation has got to pay its way," he told reporters.
"We make our money through exports and exports are emission-intensive.
"If you don't like your exports, well just start telling me how low you want to take your standard of living."
Agriculture Minister David Littleproud has suggested paying farmers to cut their greenhouse gas emissions as part of the deal on climate change.
The Nationals deputy leader argues farmers have carried the cost of previous climate targets and need compensation for stronger action.
"If there is to be any move towards it (net zero) then farmers should be part of the solution," Mr Littleproud said.
"They shouldn't be penalised like they have been in the past, where they have footed the bill for the country's social conscience, and we just simply say that it's time to square the ledger."
But Mr Joyce has downplayed the prospects of clinching a quick deal with the Liberals.
"We don't have to worry about conditions, that's a long way off," he said.
Nationals senator Bridget McKenzie has also spoken out ahead of negotiations between the coalition partners.
She warned Australia risked sleepwalking into an international agreement on net zero emissions, which favoured rich industrialised nations with the competitive advantage of established low-emission technologies such as nuclear power.
Senior members of the Morrison government have reportedly considered taking a proposal for nuclear power to the next election.
The Australian newspaper reports the political and policy implications of a nuclear industry were weighed up by members of cabinet.
Lifting the moratorium on nuclear energy in a bid to cut greenhouse gas emissions and ease reliance on fossil fuels was central to their discussions.
The option was reportedly considered too dangerous without bipartisan support from the Labor Party.
