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Prime Minister Justin Trudeau walks through the Hall of Honour to a caucus meeting, Thursday, November 5, 2015 in Ottawa.

Adrian Wyld/The Canadian Press

Barack Obama has formally rejected the Keystone XL pipeline project after seven years of review, saying that importing "dirtier crude oil" from Canada would tarnish the United States' reputation for fighting climate change.

The U.S. President's decision on the oil sands pipeline, while not unexpected, puts pressure on Justin Trudeau's new Liberal government to rehabilitate Canada's international image as a responsible energy producer and find new routes to get crude to foreign markets.

Foreign Affairs Minister Stéphane Dion said it was not helpful for Mr. Obama to disparage the product of Canada's oil sands, but added the federal government needs to "move on … make a fresh start" – and demonstrate to export markets that this country can effectively combat climate change even as it produces oil.

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The former Conservative government was long accused of dragging its feet on climate-change mitigation measures.

Mr. Dion said Ottawa must put in place sufficiently rigorous environmental assessment, and deploy enough clean-energy production, to dispel any impression that the Canadian oil sector is a pariah to be avoided. "And then our product and goods will be welcome everywhere," he said.

Alberta Premier Rachel Notley objected to Mr. Obama calling the oil sands crude dirty, but said the President's decision demonstrates that Canadians need to step up measures to reduce emissions of greenhouse gases.

"It was not necessary to be quite so critical in the way they described our energy product," Ms. Notley told reporters. "But it also underlines the fact that we need to do a better job in terms of the work we do here in Alberta on climate change."

Mr. Trudeau said he was disappointed by the Keystone rejection, but respects Mr. Obama's decision. This is a major change from the tone of the former Conservative government. The Liberals are trying to remove the pipeline project as an irritant between Canada and the United States. Mr. Trudeau had long criticized former prime minister Stephen Harper for hectoring the Americans about the pipeline, saying it hurt relations.

Former Conservative defence minister Jason Kenney called Mr. Trudeau's response lacklustre on Friday, saying on Twitter that "Liberals [are waving a] white flag on a political decision that will cost the Canadian economy billions of dollars and thousands of jobs." Mr. Kenney is a potential candidate in the coming race for the leadership of the Conservative Party.

Calgary Mayor Naheed Nenshi questioned Mr. Obama's decision and said Canadian energy must have access to markets. "I am very disappointed that one pipe, nearly a metre wide, is being asked to bear all the sins of the carbon economy," he said in a statement.

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The Liberals under Mr. Trudeau have supported TransCanada Corp.'s Keystone project, which offered Canadian oil producers a bigger conduit to ship their product to the U.S. market, but Mr. Dion said they also back another TransCanada crude export proposal: the Energy East pipeline.

There has been confusion over the Liberal policy on Energy East, which would ship oil for export to a New Brunswick port terminal, but Mr. Dion said the government is willing to get behind the project. "We support this … but we want that to be done properly and it will be difficult to do if we don't strengthen the process itself, the process of consultation with communities and the process of scientific environmental assessment."

Environmentalists rejoiced at Mr. Obama's Keystone announcement, claiming victory after years of battling that turned Keystone XL into a symbolic issue – not just a pipeline but a test of the importance of fighting global warming.

"This is a big win," said May Boeve, executive director of, which is based in Oakland, Calif., and campaigns for action on global warming. "President Obama's decision to reject Keystone XL because of its impact on the climate is nothing short of historic – and sets an important precedent that should send shock waves through the fossil-fuel industry."

The U.S. President is expected to call for sweeping global emissions reductions at international talks that begin in Paris on Nov. 30, and approving Keystone XL would have tarnished his reputation as a leader on tackling climate change.

And Mr. Trudeau will use the meeting, known as the COP 21 United Nations conference, to begin refashioning Canada's reputation on climate change.

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The Liberal Prime Minister signalled he wants to build a North American position, and "work hand in hand with provinces, territories and like-minded countries to combat climate change, adapt to its impacts, and create the clean jobs of tomorrow."

TransCanada indicated on Friday that it was not about to take "no" for an answer on Keystone.

"TransCanada and its shippers remain absolutely committed to building this important energy infrastructure project," said Russ Girling, TransCanada's president and chief executive officer. "We will review our options to potentially file a new application for border-crossing authority to ship our customer's crude oil."

Mr. Girling accused Mr. Obama of seeking to enhance his stature and ignoring science – a charge usually levelled at climate-change deniers. "Today, misplaced symbolism was chosen over merit and science – rhetoric won out over reason," he said in a statement.

Saskatchewan Premier Brad Wall said Mr. Obama's decision is "more about U.S. domestic politics than it is about good environmental policy."

He said it is wrong to think this will stop Canadian oil from reaching U.S. markets, adding the decision means more rail cars full of crude travelling through the countryside.

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"Oil will move with or without pipelines. Consider the facts: In 2008, there were 9,500 rail carloads of oil shipped in the U.S. By 2014, that number had jumped to 493,000 – over 50 times as many," the Premier said.

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