One reason for the lack of deployment was that the PEM protocol depended on prior deployment of a hierarchical public key infrastructure (PKI) with a single root. Deployment of such a PKI proved impossible as the operational cost and legal liability of the root and 'policy' CAs became understood.
In addition to being an obstacle to deployment the single rooted hierarchy was rejected by some commentators as an unacceptable imposition of central authority. This led Phil Zimmermann to propose the Web of Trust as the PKI infrastructure for PGP.
Attempts to deploy PEM were finally abandoned in response to the need to extend the protocol to support MIME leading to the development of MOSS (never widely implemented; now abandoned) and S/MIME (shares de facto standard status with PGP).