A nit: aren't biofuels, waste and peat only "green" in the sense that they are renewable. In terms of climate change (which is the point of this discussion), these sources still release CO2, no?
Indeed. There is a campaign ongoing in Sweden to classify peat as fossil fuel as it takes thousands of years to recreate a peat bog. However that is how it happens to be classified in Sweden at this moment. If we didn't make waste out of oil, such as plastic bags, but paper bags etc. then waste would be "more"green than it is today. Of course a true recyclables would be preferred.
Except paper bags are far worse for the environment than plastic. The use more water, more energy to make, more energy to transport, more energy to trash, and more energy (and water) to recycle. They also can not be reused.
I personally use very few bags as I have cloth bags with me when I am shopping for food etc. A nit, paper bags can certainly be reused, I do it all the time for our recycling, which is kept in paper bags i the garage and sometimes for shopping.
More energy and water use in Sweden is less of a problem, as our energy is largely biofuel, hydro or nuclear, but of course it is better to use less energy. Water we have quite a lot of.
Plastics isn't biodegradable and paper is, but yes, you are right, this is not an easy good/bad choice.