It is a well-documented fact that coal production – and usage – has been declining for decades in the United States, and for good reason. The Washington Examiner recently reported on a paper titled Coal Cost Crossover, which found the cost of operating coal power plants continues to rise, to the point that it is actually driving inflation across the U.S. economy. Despite this, Texas and ten other GOP attorneys general have filed a lawsuit claiming something different: that three large asset managers have “colluded” to manipulate energy markets and are the apparent drivers of consumer electricity price increases. Blaming a boogeyman is a time-honored political gambit, but it often leads to bad public policy.
The reality is simpler: the coal industry’s decline more directly reflects the transition in how we generate electricity across the country and the increasing regulatory burdens it faces.
Ignoring market realities, the AGs argue that these asset managers violated antitrust law by participating in climate-focused investor coalitions that allegedly harmed the coal industry. This claim collapses under basic scrutiny; it doesn’t make sense to invest money in order to lose money. If upheld, the impact on financial markets could further harm the coal industry and potentially upend index funds for retail investors – thereby increasing prices even more.
The idea that a few investors with varying degrees of involvement in climate-aligned organizations caused coal’s decline ignores the real developments in U.S. energy markets. Coal consumption in the U.S. has been declining steadily for years – not because of a conspiracy, but because natural gas is cheaper and cleaner, and because renewable energy is becoming increasingly competitive. Power generators have responded to price signals and efficiency – not to alleged pressure from Wall Street investors who themselves are invested in coal companies.
The long-term trend is clear: market economics continue to drive the transition away from coal. By litigating the issue with weak facts, these AGs are further distorting the energy market by forcing more coal divestment – ironically, exactly what these climate coalitions have been seeking – while simultaneously threatening and undermining index fund investing.
This is where the lawsuit does the most damage. The increasingly dynamic investment landscape has led to significant growth in the number of retail, or average, investors. Index funds offer a low-cost, easy way to invest, and as a result, have grown substantially. In 2010, investment firms managing index funds for their clients held about 19 percent of net assets; by 2023, that number had grown to 48 percent.
Asset managers are passive, minority investors in these coal companies through index funds purchased by retail investors. And so far, no court or regulator has ever found that index funds holding only minority interests are anything other than passive investors. However, if this lawsuit succeeds, it could change the “investment-only” exemption in relevant antitrust law, changing how firms manage holdings and threatening the future and availability of index funds.
This would be especially problematic for retirement plans, as many 401(k)s offer index funds as part of their investment options. In 2021, over 95% of larger retirement plans and 89% of smaller plans offered index funds to American savers. This lawsuit threatens an investment staple – one that has made investing more accessible to millions of Americans.
Conservatives have long argued that markets work better than mandates, and that government should not pick winners and losers. This lawsuit turns those values upside down – at the expense of the everyday investor.
Coal’s decline wasn’t a conspiracy – it was a market signal. Not only are the facts of the case wrong, but the proposed solution is too. Punishing asset managers through a bogus lawsuit won’t change market economics; it will only distort the free market and hinder the millions of Americans who invest in – and rely on – index funds. If we want lower coal prices, we should reduce the regulatory burdens these companies face, thereby increasing supply and lowering the price.
