Working Paper: CEPR ID: DP18327
Authors: Sungjoung Kwon; Michelle Lowry; Michela Verardo
Abstract: Innovation in green technologies is viewed as a crucial driver of the transition to greener modes of production and consumption. However, there is considerable uncertainty regarding the speed of this transition. Motivated by the fact that regulatory developments represent one key source of uncertainty, we examine how firms complement their innovation activities with efforts to influence the regulatory agenda through lobbying. On average, firms engaging in green innovation do not lobby to increase demand for these products and services. Rather, many green innovators represent firms whose current business operations are mostly brown, and these firms employ lobbying to maintain the status quo, i.e., to protect their brown cash flows into the future. Relative to other green innovators, firms that engage in more brown lobbying have higher rates of future adverse environmental incidents. Evidence suggests that environmental rating agencies do not completely recognize these effects.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Current business reliance on brown operations (L99) | Increased brown lobbying (D72) |
| Substantial market power (D42) | Increased brown lobbying (D72) |
| One standard deviation increase in current green operations (L99) | 45 percentage point lower allocation to brown lobbying (D72) |
| Higher levels of brown lobbying (D72) | Increase in adverse environmental incidents (Q53) |
| Green innovators (Q55) | Lobbying efforts not aligning with innovation efforts (O36) |