As Canada and the United States both move toward national cap-and-trade programs to reduce greenhouse gas emissions, a new report from the Council on Foreign Relations (CFR) urges the two countries to integrate their cap-and-trade systems and warns against the risks of a Canada-only cap-and-trade scheme, and against an ill-designed U.S. low-carbon fuel standard. The CFR is a nonpartisan and independent membership organization headquartered in New York.

“Smart regulation can place a fair and reasonable price on the oil sands’ greenhouse gas emissions, providing the right incentive to reduce them,” says Michael A. Levi, CFR’s David M. Rubenstein senior fellow for energy and the environment and the report’s author, “but ill-conceived regulation could undermine United States and Canadian climate and security goals.”

The report emphasizes that global economic conditions and Canadian policy will remain the major factors shaping the oil sands’ future. But because the United States is the natural destination for oil sands products, U.S. policy will be important. It urges U.S. policymakers to balance its energy security and climate goals by working with Canada to promote strong incentives to cut the emissions associated with each barrel produced from the oil sands, without directly discouraging production itself.

Given the consequences to both the Canadian economy and U.S. energy supplies, effectively balancing U.S. policies that affect the Canadian oil sands makes sense for both sides.