Most of the paper bags I'm seeing have obvious fairly high recycled content (little splotches of white/other colors, etc). YMMV. But sustainable forestry is definitely possible in any case.
But the idea is to get people to use reusable bags. I don't know how successful that is generally but my family has switched to that, and in fact my mom and grandmother have been using reusable bags almost exclusively for ages before the ban. As for litter, I would say a lot of it I saw was in fact plastic shopping bags. There's still plenty of other litter, but its nice that one big chunk is gone, and paper bags not only don't seem to get littered as much but also they quickly and unquestionably degrade. As someone who as been one of those people "cleaning up all the garbage" on a number of occasions, it's a losing battle. Even in some less popular areas you can clean it up one day and its almost back to how it was the next. The only real solution is to cut it off at the head... ideally both de-plasticizing waste AND reducing how much people litter/let stuff blow away.
I haven't missed single use plastic bags one bit. The couple of things that my family really needs them for (kitchen scraps, etc) has just shifted to other sorts of bags that we've always had that are probably not going away (cereal bags, produce bags).