You're totally right that there's a massive environmental cost either way.

Digitally the price per song of is offset by the sheer number of albums you can have. I have 1,926 albums and I can overwrite them with new artists on the same storage and I can add 10x more to the same storage. Or I can reuse the storage for something else. This versatility is called "re-use" and it's a pillar of environmental sustainability.

If it wasn't a malleable plastic, and I've read of metals being used, then perhaps it would be different. But even then density and permanence and shipping still make it incredibly inefficient to distribute data in this fashion - an LP only holds about 200 - 300 megabytes of write-once data.

The marginal negative environmental externality of one more digital song is very low. That of a record is essentially constant.

Make a record and the environmental damage is done.

Steaming music continues environmental damage for as long as the server is on.