Residential Industrial Interface

I am a development planner in a mid-sized Canadian prairie city, currently processing a land use proposal for an area adjacent to a major steel pipe processing plant. I’ll do my best to describe the situation in words, without the plan. I’m looking for advice, gut feelings, similar experiences and solutions, references, or just your general comments. Thanks.

-We currently have a policy that states that no residential land use shall be within 1000metres of the industrial lands. The policy was instated because the steel plant itself successfully lobbied council that proximity to residential would cause land use conflict and force them to curtail their operations. The plant employs thousands in the city and is a major part of the city’s economic base.
-The plant’s concern was noise. They believe that noise from the plant would cause future residents to complain. There is also a highway which intervenes between the plant and the proposed residential area, which is quite noisy. The also plant believes that noise from the highway would be interpreted as coming from the plant.
-The City is concerned that the 1000m industrial buffer sterilizes development potential and creates poor interface with the residential land outside the buffer. Also, there are doubts that the buffer area will not effectively address the noise issue.
-The City is considering removing the policy and constructing extensive berming along the highway as a barrier to address highway and industrial noise. We are on the prairie, so there is .5% slope downward from the industrial to the residential area. Very flat.
-That’s about it. Your help please!!