Lord Stern, the economist whose report on climate change helped galvanise world leaders behind the green energy movement when it was published 18 months ago, has admitted that the situation is far worse than the assumptions that formed the basis of his ground-breaking report.

"We badly underestimated the degree of damages and the risks of climate change," said Lord Stern in a speech in London yesterday. "All of the links in the chain are on average worse than we thought a couple of years ago."

When it was first published, the Stern Review and its recommendations – zero-emission automobiles around the world by 2050, for example – brought plaudits and brickbats from the different sides of the climate change debate. A year and a half on from its publication, Lord Stern dismissed the doubters and renewed his call for urgent global action: "People who said this was scaremongering are profoundly wrong. If anything, I was too reticent. What we are playing for is the transformation of the planet," he said.

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Greenhouse gas emissions are growing much faster than previously thought because of several factors that were not fully appreciated before, including the release of methane from thawing permafrost, the acidification of oceans, and the decay of carbon sinks. The worsening situation increases the need, he argued, for a global pollution-cutting agreement to be reached by next year's climate conference in Copenhagen. He also reiterated his previous estimates that governments and business must invest the equivalent of between 1 to 2 per cent of global GDP annually up to 2050 in new technologies and efficiency measures or face climate change of catastrophic proportions. A global carbon trading system would be the "glue" for a worldwide climate deal, he said.

The sector to be most heavily affected by any global climate deal would be the energy industry, which accounts for roughly two-thirds of emissions. "We need to have zero carbon electricity, or very close to it, by 2050. That means carbon capture and sequestration (CCS) in electricity by 2050, it means nuclear, it means renewables," he said.

The soaring use of coal in electricity generation, principally from China where a new coal-fired power station comes into operation every week, means that CCS – a technology that remains unproven on an industrial scale – will be absolutely crucial. "We need to get better at carbon capture and sequestration very quickly," Lord Stern said.

Not only is coal the dirtiest fuel, it is also the only major fossil fuel source where big consumer nations still have large stores within their borders, and it is relatively cheap. For these reasons, most economists and energy analysts expect its consumption to grow massively. Lord Stern gave his revised views on the same day that the price of oil hit a new high at $114.43 per barrel amid rising demand from Asia and industrialised nations.

He said: "This is about buying down risk. Starting now, that means it requires at least 1 per cent of world GDP. That is small relative to a planetary catastrophe."