Renegade former Labor senator Fatima Payman has emerged as the last-minute deal-breaker for the prime minister's landmark environmental reform bill, which collapsed dramatically on Wednesday morning.

Amid ongoing fallout among Labor's environmentally aligned MPs over Anthony Albanese's decision to shelve the bill, the ABC can confirm Senator Payman played a critical hand in derailing what had been a written agreement between Greens leader Adam Bandt, independent senator David Pocock and the government.

She played her hand on Tuesday, after hours of negotiations on final details between Mr Bandt, Greens environment spokeswoman Sarah Hanson-Young and Senator Pocock.

It was communicated that Senator Payman would not be backing the Nature Positive reforms, which are deeply unpopular across WA's mining industry and staunchly opposed by Premier Roger Cook in their current form.

Senator Payman's decision not to back the legislation came as an "oh shit" moment for the prime minister's office, said one person familiar with events this week, because it meant the government did not have the numbers in the Senate.

The failure to lock away Senator Payman's vote followed a meeting between her and Minerals Council of Australia CEO Tania Constable, who was described as "camping out" in the senator's office.

The industry lobbyist ran through the "ramifications for WA" of the bill.

"She was on board," said the source.

Intrigue over killed bill

The now independent senator's involvement adds a fresh layer of intrigue to why Labor walked away from what appeared to be a near-certain agreement with the crossbench on the creation of a federal environmental protection agency and development of environmental standards that would apply to new resources and other land use projects.

Mr Cook on Wednesday appeared eager to talk up his own involvement in the backdown, revealing he spoke to the prime minister on Tuesday and received an assurance the bill would not pass. He described himself being on a "unity ticket" with business groups in the west.

Senator Payman's move adds to signs the bill was scuttled in the final hours by a determined rearguard led by mining and business groups. But others believe it implies the government essentially took her vote for granted.

A final explanation is that the environmental legislation was never at the top of the prime minister's priorities for Thursday's epic push to clear more than 30 bills in the final week of parliament this year, not least because of his renewed focus on "cost of living" issues.

Senator Payman sensationally quit the Labor Party in July after being "indefinitely suspended" from the caucus for defying the party and voting with the Greens on a motion calling for recognition of Palestinian statehood.

Since then there's been bad blood between her and the party including Mr Albanese, with disagreements over her requests for additional staff to manage the legislative workload.

A source close to Senator Payman denied the senator was swayed by any interest group and said she had been prepared to work with the government on its environmental legislation but had been frustrated at the lack of consultation.

"We did want to negotiate and at the end of the day we didn't have a chance to negotiate on this particular legislation," said a source familiar with the senator's decision making.

"They would not engage. In that case what do you do? Get one of those hypersonic missiles and fire it at the capital. The next time maybe they'll engage."

Labor wedged on own reforms

The environmental reforms that were a key part of Labor's 2022 election platform have since become a wedge for the party.

In one camp are MPs and the prime minister, who are concerned about the backlash from resources states, and caucus members facing challenges from Greens and teal independents in more environmentally-minded inner city seats.

Prospects of a breakthrough were revived last week after more than a year of fruitless negotiations when Senator Hanson-Young offered to drop once-vehement demands for a climate trigger in exchange for forest protections.

A letter from Ms Plibersek to the crossbench seen by the ABC shows the government was ready to eventually apply national environmental standards to regional forest agreements, which are currently exempt from the quarter-century old Environmental Protection and Biodiversity Conservation Act, when so-called "stage three" reforms are negotiated some time in the future. 

Ms Plibersek also offered $10 million to establish a dedicated eight-person unit inside the future protection agency to crack down on illegal deforestation using near real-time high-resolution satellite data.

By Wednesday morning there was sufficient confidence of a deal with the government that the Greens and Senator Pocock began preparing for a joint doorstop ahead of Question Time to lock in the deal.

Mr Albanese told 7.30 on Thursday that the government "did not have a majority in the Senate to support that [Nature Positive] legislation".

He also insisted the government has not dumped the reforms, hinting they could be revived for another round of crossbench negotiations when parliament is scheduled to return in February, though that may become moot if he calls an early election.

"We haven't abandoned anything," he said of the environmental reforms.

A source added on Friday that the prime minister's remarks are significant because he could have declared the reforms dead and buried, as he did during the week with mis- and disinformation laws.

Shadow Environment Minister Jonno Duniam accused the prime minister of "walking both sides of the street".

"They don't want to say their [environmental protection act] is dead but the prime minister killed off a deal on it for the second time — at the request of the Western Australian Labor Party," he said.

"Before anything else in the environmental policy space, the government should abide by their commitment to reform the EPBC Act — as Minister Plibersek promised to do way back, before the end of 2023."