This paper analyzes how regulatory capture by automobile producers affects their incentives to innovate and the amount of total emissions. Two types of producers are considered: diesel and petrol car. Our results indicate that with a welfare-maximizing regulator that weights consumer surplus and the profits of both car producers equally there are fewer emissions and there is more environmental innovation than under a regulator that merely maximizes consumer welfare. The intuition for this result lies in the fact that a consumer-orientated regulator uses higher emission standards to increase the competition between car producers. As emission standards and environmental innovation are strategic substitutes, car producer reduce their innovation effort as a consequence of this. The result is robust to alternative specifications such as regulatory capture by only one car producer or different environmental damages of different engine types.