* 200 bln stg low-carbon investment needed over next 10 yrs
* Only 8-10 bln stg/yr currently being spent
* Stock markets over-value fossil fuel firms (Adds UK government comment in paras 7 and 8)
By Nina Chestney
LONDON, March 6 (Reuters) - Britain's investment in low-carbon energy is running at less than half of the 200 billion pounds ($334.6 billion) needed over the next decade to meet emissions reduction targets, British lawmakers said in a report on Thursday.
The European Union as a whole has to cut emissions by 20 percent from 1990 levels by 2020 under the Kyoto Protocol international climate pact.
Britain set up the Green Investment Bank (GIB) in 2012 with 3.8 billion pounds ($6.3 billion) of initial capital to help spur investments in renewable energy and energy efficiency and stipulated it could turn to the debt markets for funding next year depending on the government debt burden.
GIB has estimated that at least 200 billion pounds must be invested in low-carbon infrastructure over the next 10 years, including around 110 billion to replace old nuclear and coal power plants and upgrade the grid.
Currently, around 8-10 billion pounds a year is being spent on low-carbon investments, which would reach a maximum of 100 billion within a decade, creating a "significant investment gap", Parliament's green watchdog, the Environmental Audit Committee, said in the report.
"The current level of green investment is running at less than half of the level needed to deliver the decarbonisation implicit in national and international targets. A significant scale-up is needed," the committee said.
The Department of Energy and Climate Change expects investment in renewable energy generation projects to total around 40 billion pounds by 2020, which will help support up to 110 billion pounds of investment across the electricity sector, a spokeswoman said.
"We have set the conditions to attract investment into our energy sector which will keep the lights on for years to come," she added.
Following the 2008 global financial crisis, banks have been less enthusiastic about providing long-term debt financing, on which many renewable energy projects depend.
Stricter banking regulations have also lowered the desire of some financial institutions to hold long-term assets and can mean they charge more for their available capital.
Uncertainty among investors about some government policies has also hindered financing, the committee said.
The government has embarked on a sweeping reform of its electricity market, introducing incentives for renewables investment through new mechanisms.
To give greater certainty, the government should reveal its renewables incentives levels to 2030 and confirm that the GIB will have the power to borrow from 2015-2016, the committee said.
The report also said stock markets could be over-valuing companies that use and produce fossil fuels, which has the potential to threaten financial stability in Britain.
As much as 60 to 80 percent of coal, oil and gas reserves of publicly listed firms should not be burnt if the world wants to limit global warming, according to a study last year by the Grantham Research Institute and Carbon Tracker.
"The UK government and Bank of England must not be complacent about the risks of carbon exposure in the world economy," said Joan Walley, chair of the Environmental Audit Committee.
"Financial stability could be threatened if shares in fossil fuel companies turn out to be over-valued because the bulk of their oil, coal and gas reserves cannot be burnt without further destabilising the climate," she added. ($1 = 0.5977 British pounds) (Editing by Keiron Henderson and Jane Baird)