CALGARY -- TransCanada Corp. (TSX:TRP) says it is cancelling its $15.7-billion proposed Energy East pipeline because of "substantial uncertainty" caused by a regulatory panel's decision to include upstream and downstream emissions in its assessment of the project.

CEO Russ Girling cited non-specific "changed circumstances" for the decision in a brief news release Thursday morning, without giving further explanation.

But in a letter to the National Energy Board posted Thursday on the NEB website, TransCanada says it's halting the project because of a National Energy Board panel's decision in September to allow hearings to consider greenhouse gas emissions from producing and processing the oil it transports in the pipeline, an unprecedented expansion of the scope of the inquiry.

In the letter, it says despite offers from the province of New Brunswick and the federal government to cover the cost of the analysis, it creates "substantial uncertainty around the scope, timing and cost associated with the regulatory review" of Energy East and the associated Eastern Mainline projects.

"After completing its careful review of these factors, the existing and likely future delays resulting from the regulatory process, the associated cost implications and the increasingly challenging issues and obstacles facing the projects, the applicants will not be proceeding further with the projects (which would include not constructing the proposed marine terminal in New Brunswick)," the company's letter says.

"The applications for the projects are hereby formally withdrawn."

The decision comes a month after TransCanada asked the NEB to put regulatory hearings on hold.

"It's a blow. It's being portrayed as a business decision but it's more than that," said Chris Bloomer, CEO of the Canadian Energy Pipeline Association, adding the decision means about 400,000 barrels per day of foreign oil will continue to be imported into Eastern Canada.

"It really is a result of this constant, and I'll say this, drip, drip, drip of regulatory uncertainty that are impacting these kinds of infrastructure decisions."

But Adam Scott, a senior adviser at the environmental group Oil Change International, had a different interpretation.

"Realizing that Energy East would never be allowed if its full climate impact was accounted for, TransCanada has walked away from the project," he said in a statement. "Energy East was a disaster waiting to happen."

The proposed project is a 4,500-kilometre pipeline designed to carry 1.1 million barrels of oil a day from Alberta and Saskatchewan to refineries in Montreal and Saint John, N.B. The project includes converting an existing natural gas pipeline to carry crude and building new segments of pipeline to complete the route.

A year ago, its first round of NEB hearings collapsed after protesters shut down hearings in Montreal and accused the panellists of bias, prompting the board to start the review process from scratch with a new, three-member panel early this year.

Some industry analysts have questioned the need for the Energy East project after TransCanada's 830,000-bpd Keystone XL project received U.S. approval to transport oil from Alberta to the U.S. Gulf Coast and Kinder Morgan won federal approval of its Trans Mountain pipeline project to nearly triple capacity of its 1,150-kilometre line from Edmonton to Burnaby, B.C., to 890,000 bpd.

Enbridge Inc.'s rebuild of its Line 3 export pipeline to the U.S. is expected to add another 375,000 bpd of capacity.

But the Canadian Association of Petroleum Producers says all the pipelines are needed, predicting in June that national oil production will climb by 33 per cent by 2030 to reach 5.12 million bpd -- CEO Tim McMillan said Thursday pipeline capacity will be exceeded under that forecast if Energy East is not in place.

Suncor Energy Inc. (TSX:SU), Canada's largest oil, gas and refining company by market capitalization, had hoped Energy East would allow it to replace U.S. and offshore oil at its 137,000-barrel-per-day Montreal refinery, said spokeswoman Sneh Seetal.

"We're disappointed," she said. "We supported the Energy East pipeline because it would have provided supply options and access to western Canadian crudes for our Montreal refinery and also would have provided access to new markets which is critical for Canadian producers."

The line would have brought western oil as far east as Irving Oil's New Brunswick works. "This is a sad day for Canada," said Irving president Ian Whitcomb in a statement.

The project has opened deep rifts in political circles, with New Brunswick and Alberta premiers expressing disappointment Thursday and Quebec politicians like Montreal Mayor Denis Coderre celebrating its demise.

In its news release, TransCanada said it will record a non-cash charge of about $1 billion in its fourth-quarter results to account for funds invested in the failed venture.

Girling assured investors that he expects TransCanada will continue to focus on its $24-billion near-term capital program, which he said will support growth in its annual dividend.

RBC Capital Markets analyst Robert Kwan said in a report the news was "neutral" from an investor point of view because of market skepticism that the project would proceed.

TransCanada shares closed up one per cent at $61.55 on Thursday on the Toronto Stock Exchange.