The federal government says it will stand down its regulations as long as the province's regulations achieve equal or better results.
Federal Environment Minister Peter Kent said Friday the government remains committed to addressing climate change and an agreement will simply avoid duplication so the industry does not face two sets of regulations.
"We remain focused on our mutual goal of reducing greenhouse gas emissions from coal-fired electricity, but want to ensure that Saskatchewan has the flexibility to choose the approach that best suits its circumstances," Kent said.
Saskatchewan Environment Minister Ken Cheveldayoff said the province needs the flexibility.
He said an agreement will allow the province to proceed with clean coal and carbon capture and storage technology at its Boundary Dam and other coal-fired plants.
In April, the David Suzuki Foundation released a report naming Saskatchewan as the province with the highest per capita greenhouse gas emissions in Canada. It criticized the province for not having a plan to end its reliance on coal-fired plants.
The province has said it has no plans to move away from the coal industry, its primary source of energy.
Carbon capture and storage has been touted as a high-tech way to help with the world's carbon problems, but critics say not enough is known about the environmental consequences of burying carbon dioxide in the ground.
Coal-fired electricity generation represents 11 per cent of Canada's total greenhouse gas emissions. By 2020, the federal government plans to reach a target of a 17 per cent reduction in total greenhouse gas emissions below 2005 levels.
Ottawa reached a similar regulations agreement with Nova Scotia earlier this year.