There are two ways of resolving this conflict that are more likely to work than other methods.  Both involve each side giving in some way.  This makes sense because the status quo hurts Canada while resolving it hurts the US.

In one option, the US could help fund Canadian efforts to mitigate the impacts of the pollution.  In the second option, Canada could help the US fund efforts to reduce pollution in the first place.  Canada could help pay for US firms to install technology to lower emission or it could help fund research on cleaner alternatives.

Either way, these two methods of resolving the conflict are more likely to be effective because they require each side to give in to at least some degree.