Shoppers may have to pay the price for Tesco's environmentally friendly policy

London Briefing:A cynic would say that there was nothing coincidental about the timing last week of Tesco's big "green" initiative, in which Britain's largest retailer unveiled a raft of measures to help combat climate change.

If the supermarket giant had indeed intended its environmentally friendly initiatives to deflect attention from yesterday's Competition Commission statement, its plan met with only limited success.

After an eight-month investigation into the £123 billion (€187 billion) per year British grocery market, the commission said in its initial findings yesterday that it was "concerned" that choice in some areas is being held back by the lack of effective competition among Britain's food retailers, although it said that it has so far failed to uncover any widespread problems in the supply chain.

It is the third time in six years that the food retail industry has been subjected to a full-scale inquiry and this time round the competition watchdog has made it clear that it will take a close look at how the major players operate on a local as well as national level.

This could be bad news for Tesco, which recently pushed its share of the UK market to a commanding 31.4 per cent, almost twice that of its nearest competitor, Wal-Mart-owned Asda. This means that little short of £1 in every £3 spent on groceries in this country goes into Tesco's tills.

Tesco certainly enjoys even bigger shares in many areas of the country: according to recent research by market analysts CACI, it is the market leader in more than half of the UK's 120 postal districts. It has a share of over 45 per cent in five postal districts and more than 40 per cent in a further 14. In London's Fulham Road alone, it has 10 stores.

It also has by far the biggest landbank in the industry, which critics accuse it of using not just for expansion of its own stores chain but also as a way of preventing others from opening in certain areas. There are tales that it has bought up sites only to sit on them for several years, blocking others from opening in the area, a charge that Tesco denies.

All of the major supermarket groups argue that their increased strength and efficiency have enabled them to pass lower prices on to consumers and there is certainly plenty of evidence to back up these claims.

Even the examples of "predatory pricing" that have been uncovered often work in favour of the consumer, the commission said.

But the growing dominance of Tesco has seen it come under increasing pressure from small shopkeepers and from consumer and other pressure groups, such as Friends of the Earth. Farmers and other manufacturers also complain that they are forced to supply the group at rock bottom prices.

The commission yesterday hinted at a "climate of fear" that may be preventing some suppliers from giving evidence against Tesco, and urged companies to come forward as the investigation goes into its final stages ahead of the full report in the autumn.

As Tesco's store numbers have expanded, so too has its product range. It now offers everything from televisions to insurance, DVD rental and mobile phones and, in its latest diversification, is making a major move into the housing market.

This is partly to help accommodate its employees who, like other low-paid workers, struggle to get on the housing ladder, particularly in London.

It is spending £50 million on affordable housing for its employees in southeast London and also plans to built flats above one of its London stores.

But the move into housing is also designed to appease the planning authorities, who demand that new developments include an element of affordable housing. Over the next three years, Tesco plans to develop up to 2,000 homes, from luxury apartments to low-cost housing.

Meanwhile, news of its drive to become Britain's greenest grocer was well-received, even if there were some concerns about its timing.

Chief executive Sir Terry Leahy promised "a revolution in green consumption" as he unveiled plans to slash emissions from its stores and distribution depots by half by the year 2020.

Within five years, the amount of CO2 used in its distribution network will also be cut by 50 per cent, he said.

For consumers, its most visible move will be a plan to publish the "carbon cost" of all its 70,000 products, each of which will carry a label showing just how much carbon has been expended in its production and delivery.

Tesco is still working on the new labelling system, but in the meantime, all food products that are air-freighted into the UK are to carry an aeroplane symbol to alert consumers.

Quite how the chain's customers will respond remains to be seen. In theory, high carbon cost items should see sales fall as consumers switch to more environmentally-friendly ranges. In many cases, however, the cost of the greener alternative will be higher. So will shoppers be prepared to pay more to combat climate change?

In many ways, the dilemma echoes that of the smaller stores that sparked this latest competition probe into the industry. While consumers say they value their local shops, most are not prepared to pay the higher prices that they usually charge and prefer the convenience of shopping at Tesco or one of the other major supermarket chains.

We may well find that the consumers' professed commitment to the environment will also crumble against the lure of lower prices.

Fiona Walsh writes for the Guardian in London