The transition from fossil fuel-based energy systems to low-carbon energy systems is now recognized as one of the major global priorities in the face of climate change, energy insecurity, and environmental degradation. Environmental policies are found to play a significant role in determining the speed and direction of energy transition and decarbonization processes. This study presents the systematic review of literature on environmental policy instruments in support of energy transition and decarbonization processes. The systematic review was conducted following the PRISMA 2020 protocol and includes literature on the effectiveness and implementation challenges of environmental policy instruments such as carbon pricing, emissions trading, incentives to renewable energy sources, fossil fuel subsidy reform, energy efficiency policies, green industrial policies, and carbon border measures. Relevant literature was identified using structured database searches with the help of pre-defined keywords and inclusion criteria. The review synthesizes literature from the power sector, transportation sector, industrial sector, and buildings sector with due consideration of regional variations and the characteristics of environmental policies. Existing literature indicates that no single policy instrument is sufficient to achieve deep decarbonization; rather, effective transitions are associated with policy mixes that combine market-based tools, regulatory standards, public investment, and institutional support. Persistent barriers include infrastructure lock-in, financing constraints, governance fragmentation, unequal institutional capacity, and social equity concerns. The review concludes that environmental policy for energy transition must move beyond isolated interventions and instead adopt integrated, adaptive, and just-transition-oriented frameworks capable of accelerating emissions reduction while supporting inclusive development.