A gallon of water per bag is probably about right – but over 99% of this is recycled and used again in the process. That means that total usage is less than half that used for plastic bags – if the figure in your post for that is correct. Most of the water used is evaporated as steam, and any that does go to the waste stream is cleaned up before discharge.

The number of trees cut down is also misleading, as in the developed world, generally 2-3 trees are planted for every one that is cut down for lumber or for pulp. It is these growing trees that absorb the most carbon dioxide – so this is a good thing. Regard the trees as an agricultural crop, just as you would wheat. Although trees take from 5 -30 years to reach maturity (instead of a season) – they should be regarded in the same light.

Chemicals used in papermaking are not really toxic (not any more) – certainly no more toxic than any chemicals used to make plastic, and they are removed from the water before discharge to a river. I know many paper mills that have to discharge cleaner water into the river than they take out (and the discharge pipe is normally above the inlet pipe). The major difference in the waters may be temperature – but less so nowadays as heat recovery becomes more common.

Then there is the option of using cloth bags – mainly made from cotton. Unfortunately the agricultural chemicals used in spraying cotton, and the huge amounts of water for irrigation, make this an environmentally questionable solution.

I think the best bet is to use paper bags and then put them into the recycling stream – where normally they will end up being used to make packaging again (and again – usually up to seven times). Not bad for one tree that is also replaced by two.