China's failure of policy innovation: the case of sulphur dioxide emission trading

Sulphur dioxide (SO2) emissions and acid rain have been one of the most serious environmental problems in China. In order to address these problems, the Chinese government has shown much interest in SO2 emission trading scheme. In spite of the government's enthusiasm, full support from US government and international organisations, and overall success of the pilot projects in several local areas in China, SO2 emission trading has never been institutionalised in any of the Chinese provinces, and therefore, became virtually unavailable. Why did China fail to adopt and institutionalise the SO2 emission trading scheme? What are the factors that affect a country's policy innovation process? Based on the diffusion and innovation literature, it is argued that policy innovation is constrained by domestic institutional factors and that lack of domestic preconditions for effective diffusion and innovation makes policy adoption costly, and therefore, leads local governments to decide not to adopt the policy.