This study is the first systematic attempt to test statistically the contrasting hypotheses on the emission of SO2 and CO2, and energy consumption in Japan and China for the last few decades. We postulate the hypotheses that local governments have incentives to internalize the local external diseconomies caused by SO2 emissions, but not the global external diseconomies caused by CO2 emissions. To substantiate our hypotheses, we decompose emissions of SO2 and CO2 into two factors: the emission factor (i.e. emission per energy use) and energy consumption. The results show that the prefectures where past energy consumption was high tend to reduce the emission factor of SO2 significantly in Japan, while we do not find such a tendency in China. There is also evidence that neither per capita income nor past energy consumption affects the CO2 emission factor and energy consumption significantly in both Japan and China, implying that an individual country has few incentives to reduce CO2 emissions.