Environmentally-Responsible Demand: Irresponsible Lobbying

How do firms respond to greener household preferences? We construct a novel
index of environmental willingness to act on the state-quarter level based on Google
Trends search data. Relating the index to firm-level information of the US auto-
motive sector from 2006 to 2019, we find ambiguous results. The average firm
not only innovates more on electric and hybrid technologies and reduces innova-
tion on combustion engines in the long run. But it also raises the share of anti-
environmental lobbying expenditures persistently over 20 quarters. These effects
are stronger and more persistent than firm responses to higher fuel prices. While
greener preferences induce a shift away from polluting technologies, higher fuel
prices leave patenting of combustion-engine related technologies unaffected. We
interpret these results as shifts in household preferences being extremely effec-
tive in inducing a market-based green transition; yet, they entail a rise in anti-
environmental lobbying thereby aggravating environmental regulation.