Large canals cannot be built at higher altitudes. The behaviour is intended to simulate canals needing a source of water. Thus the higher the altitude, the smaller the canal has to be.

It is realistic that larger canals cannot easily be built at higher altitudes because of the difficulty in getting water to those altitudes: larger canals were not in fact built at higher altitudes. This is one of the reasons that Cornwall, a hilly part of the country, had so many very small tub-boat canals. It is necessary to have a mechanism in the game that provides a realistic incentive to build the smaller canals.

Note: The way in which the maximum canal height is coded is using the max_altitude setting in each canal's .dat file. This defines a number of tiles above sea level beyond which the canal cannot be built.