Tony Abbott has left open the possibility of a return to emissions trading in a trade-off for the Palmer United Party's support for his controversial Direct Action climate policy.

A deal was struck late on Wednesday afternoon after protracted negotiations and represents a major symbolic concession by the Prime Minister, who once swore a blood oath to repeal the carbon tax and never again have a price on carbon.

Under the agreement, the government has backflipped on a promise to abolish the Climate Change Authority and will instead fund the body to undertake an 18 month inquiry into the effectiveness of emissions trading programs around the world.

Direct Action, the key plank of which is a $2.55 billion fund that pays major polluters to reduce their emissions, is now set to become law, assuming independents Nick Xenophon and John Madigan also back the legislation.

The breakthrough represents a major win for Mr Hunt and a step forward for the government, which has been without a carbon abatement policy since dumping Labor's carbon price in July.

But to achieve it, it has had to embrace the possibility of a return to emissions trading scheme at some point in the future.

At a media conference late on Wednesday with Mr Palmer and CCA chair Bernie Fraser, Environment Minister Greg Hunt said the government would restore funding to the authority, which would be "appropriately resourced" to conduct an 18 month inquiry.

While Mr Hunt maintained that the government opposition to carbon pricing remained absolute, the government is now in the strange position of funding independent advice which may well recommend it does just that before the next election.

A draft terms of reference, seen by Fairfax Media, shows the authority will be charged with investigating if and when Australia should implement an ETS, and what Australia's emissions reduction targets should be after 2020.

A delighted Mr Hunt said the deal was necessary, but appeared to acknowledge it was just a gesture which was unlikely to result in any policy change by the government.

He said Direct Action was unable to pass the Senate without it.

"If the Senate was not going to accept that proposal, and if it's an important gesture as part of the process, then we are achieving the outcome here of the emissions reduction fund, of strengthening the Carbon Farming Initiative, of reducing emissions and doing it without a carbon tax," Mr Hunt said.

Wednesday's deal also represents a concession by Mr Palmer because he has secured no commitment to adopt an ETS even if the review finds one is required to meet Australia's international obligations.

Fairfax Media first revealed on Sunday that an agreement was imminent after Mr Palmer appeared to soften his position by calling for a review of an ETS, rather than a straight commitment.

It is a substantial backdown from Mr Palmer's declarations earlier this year that Direct Action was "hopeless" and "dead" because it would be too expensive with little environmental outcome.

Labor's environment spokesman Mark Butler welcomed the retention of the CCA, branding it a minor broken promise in the scheme of things, but said there was absolutely no need for further study on an ETS as that work had already been done.

"We've supported the Climate Change Authority and we look at all of its work with great interest because it's made up of very significant people who do their work robustly and independently but they've done work on this before," Mr Butler said.

Greens leader Christine Milne said the deal would amount to nothing when it came to action on climate change.

"Clive Palmer has achieved nothing in terms of his agenda except tear down emissions trading," she said.

Mr Palmer's deal contains several other amendments, including a plan to direct more funds under the existing carbon farming initiative to indigenous to landholders for so-called savanna burn-off.

Mr Hunt said the government had also adopted four out five amendments put forward by Senator Xenophon, but it had rejected his proposal for a $500 million fund to purchase international carbon credits as this was not government policy.

Follow us on Twitter