(Bloomberg) -- China plans to tighten supply in its national carbon market to compel large polluters to curb emissions, the most significant step yet to bolster a system that’s so far delivered little support for climate action.

The Ministry of Ecology and Environment, which oversees the trading of emissions permits, has asked businesses to comment by Tuesday on draft plans that would aim to address overallocation of allowances and set limits on the volume that can be carried over to the following year, according to people familiar with the details.

Changes would see China’s power utilities — the only sector currently included in the national market — subject to a retroactive, and larger-than-expected, reduction to emissions permits awarded for 2023, said the people, who requested anonymity to discuss private details.

Permits that participants have previously hoarded and failed to trade would also lose their value after 2025, an action that could cut about half of current oversupply, the people said. Total oversupply in the market is estimated at about 360 million tons, according to the London Stock Exchange Group.

Both steps would likely add to pressures that have seen prices advance almost 20% this year. Allowances extended gains on Monday to a record of 92.33 yuan ($12.76) a ton, although the rate remains a fraction of the cost in Europe. 

The Ministry of Ecology and Environment didn’t immediately respond to a request for comment.

China has been revising rules in recent months as it prepares to extend the emissions trading market, which launched in 2021 and covers about 2,200 utilities that are responsible for roughly 4.5 billion tons a year of greenhouse gas emissions.

A further seven industries are being prepared to join the system as Beijing aims to expand trading to cover 70% of its total emissions by 2030. Aluminum and cement producers are seen as the most likely candidates to be added over the next two years. 

Read more: China Tightens Rules on Polluters Before Carbon Market Expansion

Clearing millions of tons of surplus allowances would set a fairer starting point to introduce new industries into the market, said Qin Yan, an Oslo-based carbon analyst with LSEG.

(Updates carbon allowance price in fifth paragraph)

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