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Depending on who you listen to, the demise of Energy East – the pipeline that would have shipped western crude oil to eastern Canada – is either a triumph or a disaster.

For politicians in Quebec and environmental groups across the country, it's a triumph. "An enormous victory," crowed Denis Coderre, the mayor of Montreal, who claims that he has saved his province from the certain ravages of environmental defilement. (He neglected to mention that Montreal has dumped megalitres of raw sewage into the St. Lawrence River, but never mind that now.)

For Alberta, it's a disaster – yet more proof that major energy projects just can't get done any more. It's even more than that. It's a double disaster for Premier Rachel Notley, whose opponents are jeering that her plan to buy a social licence with carbon taxes is, so far, an utter failure. But it's manna for Jason Kenney, who could well be her successor. He thinks Alberta should strike back by stopping equalization payments to Quebec.

Read also: How Donald Trump killed the Energy East pipeline

The federal Liberals, however, say that politics was simply not an issue. Market conditions were to blame. The price of oil has plunged, so TransCanada pulled the plug. That's the way the cookie crumbles. Better luck next time.

They are right – up to a point. But the federal government has created a cloud of policy confusion so thick that it is easy to mistake for a frontal assault on the energy industry itself.

"Yes, there were real market issues," says Dennis McConaghy, who is a former TransCanada senior executive and author of the book Dysfunction: Canada after Keystone XL. "But we have an utterly dysfunctional regulatory system for projects like this. The company had spent a billion dollars, and the hearing process hadn't even started."

Imagine that you're playing a game where the goalposts are moved whenever you get close to the finish line. Then, after you've spent hundreds of millions of dollars, they announce you're playing a different game.

The early going wasn't smooth. The original Energy East proposal had to be revised to protect beluga whales in the St. Lawrence. The original NEB panel had to step aside because of an inappropriate encounter with a TransCanada consultant. But the real glitch came when the new panel installed at the NEB decided to radically expand its mandate. They announced that now they were going to take into account not just the greenhouse gas emissions that would be created by building and operating the pipeline, but all the downstream emissions that would be created by the oil as it was used.

That's like saying the auto industry isn't just responsible for the greenhouse gasses emitted during the manufacturing process, but for all the emissions created when people drive the cars.

The rule change was the last straw. No wonder TransCanada threw in the towel.

What's so dysfunctional about our regulatory process, Mr. McConaghy says, is that "we don't have our values and politics sorted out at the beginning." The main job of a regulator is to ensure that risks are reasonably minimized, that direct impacts to stakeholders are weighed, and that global engineering and safety standards will be met. Instead, our government treats the regulatory process as a cross between a policy debate and a focus-group exercise.

What a mess. How did we get here?

We got here because the Trudeau government's energy policy is fundamentally incoherent. They want to be all things to all people, and that – despite their assurances to the contrary – is just not possible. The environmental lobby is absolutely opposed to any incremental hydrocarbon production. But incremental hydrocarbon production is absolutely essential to capital generation, wealth production and our standard of living.

A coherent energy policy would require the government to make real tradeoffs. And they just can't do it.