The Australian Senate has voted to repeal the carbon tax, a levy on the biggest polluters passed by the previous Labor government.
PM Tony Abbott, whose Liberal-National coalition beat Labor in an election last year, had made the repeal a central aim of his government.
Politicians have been locked in a fierce row about the tax for years.
Labor says it helps to combat climate change, but the Liberals claim it penalizes legitimate businesses.
Australia’s Senate voted 39 to 32 to repeal the tax.
Introduced in July 2012, it charges the 348 highest polluters A$23 ($22.60) for every tonne of greenhouse gases they produce.
Australia is the developed world’s worst polluter per head of population. But critics, including Tony Abbott, said that the tax cost jobs and forced energy prices up.
There were widespread protests against the introduction of the tax in Australia and its repeal formed a major part of Tony Abbott’s election manifesto.
He says he plans to replace it with a A$2.55 billion taxpayer-funded plan under which industries will be paid to reduce emissions and use cleaner energy.
Tony Abbott’s coalition does not hold a majority in the Senate but the repeal went through with the support of senators from mining tycoon Clive Palmer’s Palmer United Party.
Labor and the Greens voted against the repeal, with Greens leader Christine Milne describing the vote as an “appalling day for Australia”.
Labor accused Tony Abbott of “taking Australia backwards while the rest of the world is moving forward”.
The Climate Institute think-tank said in a statement that the move left Australia “bereft of credible climate policy”.
Australia has promised to reduce its emissions levels by 5% on 2000 levels by 2020.
[youtube D3BbTMGaJbs 650]