Abstract Energy costs, carbon dioxide emissions, security of supply and system stability are common challenges in small islands. Many European islands have become pilot sites of energy innovation, but this green transition goes slowly in other ones usually not connected to the national grid. This study investigates the economic and environmental sustainability related to the integration of hydrogen and batteries storage in small islands, considering at the same time the use of the stored hydrogen for fuelling Fuel Cell Electric Vehicles and Hydrogen Compressed Natural Gas vehicles to meet electricity and public transportation demand of islands, so as to increase the Renewable Energy Sources penetration level. Selecting the island of Favignana (Italy) as case study, HOMER software has been used to carry out the energy analysis of different scenarios, in order to identify the most effective energy solution from both technological and economical point of views. Using economic and environmental indicators, the outcomes show that the implementation of a hybrid storage system with batteries and electrolyser can be an adequate and reliable option for increasing energy independency of small island and decarbonizing transport sector optimizing economic and environmental sustainability.