The view that promoting the use of energy storage systems produces environmentally attractive results has been standard in policy circles. Policymakers have been enthusiastic about energy storage systems primarily because of their belief that cheaper and more prevalent storage options could help facilitate the integration of increased renewable energy generation and speed up the transition to a low-carbon grid. This beneficial outcome, however, is not guaranteed. Cheaper storage could also facilitate a higher usage of fossil fuels than the current fuel mix, causing an increase in greenhouse gas emissions. In fact, California’s Self-Generation Incentive Program, which is the state’s pioneering funding program developed to incentivize energy storage among other technologies, has led to an increase in greenhouse gas emissions, showing that it is this possibility that must be considered in policymaking. Therefore, it is important to design policies that help ensure that the increased use of energy storage leads to a reduction of greenhouse gas emissions, rather than to an increase. Thus, the first goal of this Article is to challenge the common belief that increased energy storage would necessarily reduce greenhouse gas emissions, and show, instead, that under certain scenarios the opposite could be true. The second goal is to analyze the failure of the current regulatory and policy landscape to provide incentives for a desirable level of deployment of energy storage and the reduction of greenhouse gas emissions, and propose policies that would correct these inefficiencies.