The Unintended Carbon Impacts of Large-Scale Electricity Storage

Problem definition : The transition from fossil-fuel generators to renewable energy requires significant growth of flexible resources to manage weather-dependent output variations. Key among these are large-scale storage assets. Although storage is mostly carbon neutral in its direct operations, its arbitrage activities influence the scheduled quantities of other producers, thereby affecting market-level carbon emissions indirectly. This raises questions about the extent of these indirect emissions and how to limit them effectively. Methodology/results : We develop a model to analyze the emission impact of profit-maximizing large-scale storage agents in a competitive electricity market. We derive a tight condition for the worst-case rate of added emissions from a storage transaction. Accordingly, we characterize the minimum sufficient carbon levy to keep emissions below a desired threshold. We support our theoretical findings with numerical studies based on the Dutch electricity market. Our results show that both emissions and the corresponding carbon levy depend on the round-trip efficiency of the storage asset and the characteristics of technologies in the energy mix (e.g., marginal costs, emissions, and capacities). The findings remain robust under uncertainty in demand and renewables. Managerial implications : The framework developed in this work enables market participants and regulators to assess, interpret, and potentially control the unintended carbon impacts of storage asset operations. Several findings are nontrivial and carry important implications for regulation. For instance, we show that counterintuitively, storage assets with higher round-trip efficiency can increase system emissions more—and require higher carbon levies to curb them—than less efficient ones. Additionally, although a carbon levy reduces the worst-case emission rates of a storage transaction, we identify scenarios where the emission impact of a storage agent may rise with higher levies. Notably, the indirect emissions of storage agents are also sensitive to whether solar or wind is the dominant renewable.