Background

While there aren't any strong environmental arguments against sheetrock, it has never been a favorite product  in the green building community.  On the positive side, its made of paper and gypsum, and most of the paper these days is recycled.  Gypsum is relatively plentiful, and fairly easily recycled , and the board doesn't take a huge amount of energy to make.  Its relatively low cost to install, and relatively easy to patch in the event access to the wall cavity is needed or the sheetrock is damaged.  Sheetrock also acts as fire retarder and is required by code in many locations in a wood framed house.

One of the strongest arguments against sheetrock is aesthetic, especially from the natural building community, where the smooth square walls of sheetrock and the highly automated installation process are representative of everything that is wrong with our culture.  Natural building, by contrast, typically has a hand plastered finish both inside and out, with the effect being described as "wavy walls", which the waviness imparts a "done by hand, natural" feel.  While there is merit to this position, there are clearly many other factors affect whether a home feels in tune with nature or not, such as whether its oriented to the sun, how it integrates into the building site and the type of other finish materials.  Finally, not everyone likes the natural look.

Environmentally, the worst problem is that huge quantities of sheetrock end up in the landfill every year.  Although it is theoretically easy to recycled, it is absorbent to most airborne toxics and can be covered in mold.   Although the paper coating is stripped away, it also can absorb toxics, mold and be covered in a toxic paint (eg lead based paint).  Some recyclers don't want to deal with this, and so will only take new scrap.  Sheetrock often contains fiberglass fibers for added strength and the pre-mixed joint compound has various additives such as anti-fungal agents, that are potentially toxic.

Practically the worst thing about sheetrock is the dust that gets everywhere, and the fact that getting a nice smooth finish is difficult without significant practice.  One possibility is that instead of the usual smooth taping (or the dreaded textured walls), would be to add a top coat and let it be wavy!  We're sure that this likely a bad idea, but can't resist throwing out the option.

For anyone who has had to upgrade utilities in an existing building, sheetrock is horrible.  First there is the problem of dust getting everywhere, and second finishing sheetrock to look nice just isn't that easy.  An alternative is to put all the utilities in accessible chases, but that also is easier said than done.

There are really few alternative choices.  For the natural builder, there are various earthen plasters, most of which are based on clay, which is available locally almost everywhere. Various wood products have also been used, but given how we are already overusing our wood resources, it doesn't seem like a good idea to suddenly change the 1.5 million houses built every year from sheetrock to a wood product.  Various people have experimented with pressed strawboard walls (non load bearing), and a few companies make strawboard as a direct replacement for particle board. It seems possible that a product made of waste paper could also be made (eg something like gridcore, which is no longer made).  For any of these alternative surfaces there are issues of what to do with the joints (in the case of sheet goods), and whether homeowners will like the look of the alterative material if it looks different from the smooth finish of sheetrock that we are all used to.  Then there is also the issue of fire protection.

Reality

Although I pretty much despise sheetrock (but only because the utilities are hidden under it, and its so messy to work with), I don't mind the smooth wall look, and its environmental impact is relatively small. The biggest concern is that the utilities are now buried and very inconvenient to get at.  It certainly would have been better to make them all accessible some other way, but that was just beyond any of our experience, and due to the other complications of the project the idea never got off the ground, except all the low voltage (cable, telephone, computer) got installed in accessible chases.  Since the scope of our project was to use standard building building practices in an environmental way, we were probably stuck with sheetrock anyhow.

Because labor is much more expensive than sheetrock, the standard technique is to use twelve foot sheets laid on their side, and trim off any extra and send it to the dump (we requested that it go to the local recycle plant, but typically it probably goes to the landfill).  Due to trying to use the biggest pieces possible in order to reduce the number of joints, the amount of scrap is fairly large.

Sound insulation
In order to give better sound isolation to the apartment, we installed RC channels on all shared walls and ceilings underneath the sheetrock. Since the one shared wall had quite a number of ducts in it, we put soundboard (1/2" homosote) under the sheetrock, although it is unclear whether this really helps much.  Although the ceiling is filled with 12" of dense pack cellulose and then covered in RC channel and sheetrock, I could clearly hear Kim walking upstairs in dress shoes.