The article investigates the role of policy diffusion and policy learning in shaping  California's cap-and trade system. Seemingly it is very similar to other cap-and trade systems, but in practice many differences reflect active efforts by California's policy-makers to avoid flaws that they saw in other systems, including the EU ETS. Wr assess how the system emerged, the significance of policy-diffusuion by applying two broad sets of theoretical frameworks, the role of policy diffusion and organized local political concerns. Despite its signature status, California' mostly relies on much less transparent and more costly direct regulation. We also find that its cap-and trade system  has developed mostly in its own special political context.