Priced In? EU Climate-Policy Milestones, Carbon Prices and European Sector Stocks from 2020 to 2026

Between 2020 and 2026, the European Union first tightened its climate policy, raising its 2030 target, reforming the Emissions Trading System (ETS) and adopting a carbon border adjustment mechanism (CBAM), and then loosened parts of it by allowing for international credits, delaying ETS2 and weakening the Market Stability Reserve. This study asks whether these milestones were news for financial markets. It examines the reactions of ten STOXX Europe 600 sectors, EU carbon allowances (EUAs), Brent crude, clean-energy equities and green bonds to 19 EU announcements: nine tightening, seven loosening and three mixed. The analysis combines market-model event studies with parametric, rank and randomisation tests, false discovery rate control, power calculations, tests of event-induced variance, regressions of asset reactions on the carbon-price reaction and identification through heteroskedasticity. Four findings emerge. First, no asset shows a net-tightening abnormal return that survives correction for multiple testing; the 95% bootstrap intervals rule out two-day effects larger than about 1.5% for carbon-intensive sectors and 1.6% for EUAs. Second, the carbon market did not react in the direction implied by the legal content of the announcements: EUA reactions matched the classification in only six of 16 events, and EUA volatility was not higher on announcement days. Third, evidence that the announcements raised return variance is fragile: it survives randomisation inference only for Brent at the 10% level. Fourth, larger carbon-price reactions on announcement days were associated with lower green bond returns, but this association does not survive multiple-testing correction and identification through heteroskedasticity is weak. Advance pricing during the legislative process is consistent with these results, but so are limited power, offsetting effects and the gap between legal content and market surprise.