Transition to a low carbon energy system is necessary for global sustainable development. In the context of developing countries, such transition challenges are complex—as faster economic growth along with universal access to energy are to be achieved aided by a low carbon energy system. Literature suggests that for this to happen there is need for rapid penetration of a variety of low carbon technology options supported by appropriately designed fiscal instruments. This paper reviews a wide variety of existing literature and draws example covering both Annex I and Non Annex I countries, with special emphasis on the latter, and shows how efficient and effective fiscal instruments are emerging for a transition to low carbon energy systems. Case study assessments show that initially incentives and strategies are built through national government's policy interventions to mobilize domestic finance to support the low carbon niche development which then attract private and public funds to promote and sustain the transition. However, complexities in the issue need further effort and attention.