Not a true expert on the topic but from my reading it sounds like land is generally a carbon sink and water produces carbon so when you turn land into water, the net effect is additional carbon. Estimates have man-made reservoirs accounting for 0.5% of the total anthropogenic carbon emissions worldwide; fairly significant when we're considering the scale needed for energy storage with wind (blows 35% of the time, US avg.) and solar (shines 25% of the time, US avg.).

http://documents.worldbank.org/curated/en/739881515751628436...

It's carbon neutral when plants decay to carbon dioxide. But they need oxygen for this to happen - and when they don't (like when they're underwater), they decay to methane.

And methane is a greenhouse gas 20-80x more potent than carbon dioxide.