It is not up to the court to decide if the government acted reasonably in failing to meet its international commitments, and even if it had the power to do so, there was no practical way to enforce a court order, a federal judge ruled.
"Such an order would be so devoid of meaningful content and the nature of any response to it so legally intangible that the exercise would be meaningless in practical terms," Justice Robert Barnes wrote.
Canada's former Liberal government signed the Kyoto agreement in 1997. The agreement required Canada to cut the country's greenhouse gas emissions by 6 percent below 1990 levels by 2012, but critics contend the Liberals failed to act quickly to implement the deal.
Conservative Prime Minister Stephen Harper refused to abide by the agreement after he was elected in 2006, saying the reduction targets were not achievable and that trying to meet them would severely damage the country's economy.
Canada's emissions of greenhouse gases, such as carbon dioxide, were 25.3 percent above the 1990 level in 2005. They are largely produced by burning fuels such as coal and oil that contain carbon.
The Conservative government last year introduced a plan it said would cut emissions by 20 percent from 2006 levels by 2020, a target that environmental critics say is hopelessly inadequate.
Friends of the Earth said the court had reneged on its own legal responsibilities by dismissing the lawsuit, and unless the decision is appealed Canada's "woeful inaction" on climate change would continue.
"This decision is shocking and a stake in the heart of democracy since it appears we cannot enforce Canadian domestic law," Beatrice Olivastri, the group's chief executive, said in a written statement.
The government had argued that the issue of Canada's response to the Kyoto agreement should be handled by voters not the courts.
Harper won reelection to a second minority government, following a campaign in which the Conservatives bitterly attacked Liberal leader Stephane Dion's call for a tax on carbon emissions to reduce greenhouse gases.