Canada could gain credibility at home and abroad if it unilaterally applied a cap-and-trade system to reduce carbon emissions instead of waiting for Washington to do it first, the OECD said Monday.

The cap-and-trade system is a market driven approach that sets a ceiling on harmful emissions that contribute to global warming and allows polluters to trade permits with greener companies in order to meet the ceiling.

"The federal government's intention to link its climate policy with the possible cap-and-trade system in the United States is understandable and sensible," said the Paris-based Organization for Economic Cooperation and Development.

"However, acting unilaterally would result in domestic and international credibility gains," the OECD told Canada in its latest Economic Survey for the country.

"In fact, uncertainty as to future regulation is becoming a major barrier to investment in nonconventional oil and natural gas industries," the 2010 study noted.

The cap-and-trade system, lauded by US President Barack Obama and largely embraced by environmental groups, has met furious opposition from the US oil industry.

"Canada should thus remain vigilant and not import avoidable climate-policy uncertainty from its neighbour. Over the medium term, it should strive to meet efficiency levels comparable to international best practices," the OECD recommended.

The OECD said high oil prices have made the development of oil sands in Alberta extremely profitable, but at a high environmental cost.

By 2008, greenhouse gas emissions were 24% above 1990 levels, compared with Canada's Kyoto commitment to cut them by 6%, although less than 10% of the increase is attributable to oil-sands development, the think tank said.

The report also pointed out that while Canada aligned its commitment with the US to reduce its greenhouse gas emissions by 17% below 2005 levels by 2020, it has yet to lay out a plan on how this would be achieved.