According to Slate, while both options lead to carbon dioxide emissions, when all is said and done, dryers use less energy. Variations in how paper towels are produced, transportation costs, and the maintenance that goes into keeping towels replenished all require more energy. Plus, although recycled paper uses 40 percent less energy to manufacture, most towels make their homes in landfills once used, and some are bleached, which can be harmful to the environment.
With the recent crop of 10-seconds-or-less super-potent dryers — think XLerator and the Dyson Dryblade — dryers have become more efficient, particularly when they run on 1,600 watts or less. Put that together with the fact that hand dryers last an average of 10 years, and they're the most eco-friendly option. You could always just drip-dry, or a swipe on the old jeans would do the trick, too.
Source: Flickr user nickgraywfu