I generally agree with previous answers, but there is another important aspect: usability.
For example, in git you can create a repository with the .git directory outside of that. To specify that, you can use a command line argument --git-dir or an environmental variable GIT_DIR.
Of course, if you change the current directory to another repository or inherit environmental variables in scripts, you get a mistake. But if you need to type several git commands in a detached repository in one terminal session, this is extremely handy: you don't need to repeat the git-dir argument.
Another example is GIT_AUTHOR_NAME. It seems that it even doesn't have a command line partner (however, git commit has an --author argument). GIT_AUTHOR_NAME overrides the user.name and author.name configuration settings.
In general, usage of command line or environmental arguments is equally simple on UNIX: one can use a command line argument
$ command --arg=myarg
or an environmental variable in one line:
$ ARG=myarg command
It is also easy to capture command line arguments in an alias:
alias cfg='git --git-dir=$HOME/.cfg/ --work-tree=$HOME' # for dotfiles
alias grep='grep --color=auto'
In general most arguments are passed through the command line. I agree with the previous answers that this is more functional and direct, and that environmental variables in scripts are like global variables in programs.
GNU libc says this:
The argv mechanism is typically used to pass command-line arguments specific to the particular program being invoked. The environment, on the other hand, keeps track of information that is shared by many programs, changes infrequently, and that is less frequently used.
Apart from what was said about dangers of environmental variables, there are good use cases of them. GNU make has a very flexible handling of environmental variables (and thus is very integrated with shell):
Every environment variable that make sees when it starts up is transformed into a make variable with the same name and value. However, an explicit assignment in the makefile, or with a command argument, overrides the environment. (-- and there is an option to change this behaviour) ...
Thus, by setting the variable CFLAGS in your environment, you can cause all C compilations in most makefiles to use the compiler switches you prefer. This is safe for variables with standard or conventional meanings because you know that no makefile will use them for other things.
Finally, I would stress that the most important for a program is not programmer, but user experience. Maybe you included that into the design aspect, but internal and external design are pretty different entities.
And a few words about programming aspects. You didn't write what language you use, but let's imagine your tools allow you the best possible argument parsing. In Python I use argparse, which is very flexible and rich. To get the parsed arguments, one can use a command like
args = parser.parse_args()
args can be further split into parsed arguments (say args.my_option), but I can also pass them as a whole to my function. This solution is absolutely not "hard to maintain for a large number of arguments" (if your language allows that). Indeed, if you have many parameters and they are not used during argument parsing, pass them in a container to their final destination and avoid code duplication (which leads to inflexibility).
And the very final comment is that it's much easier to parse environmental variables than command line arguments. An environmental variable is simply a pair, VARIABLE=value. Command line arguments can be much more complicated: they can be positional or keyword arguments, or subcommands (like git push). They can capture zero or several values (recall the command echo and flags like -vvv). See argparse for more examples.
And one more thing. Your worrying about memory is a bit disturbing. Don't write overgeneral programs. A library should be flexible, but a good program is useful without any arguments. If you need to pass a lot, this is probably data, not arguments. How to read data into a program is a much more general question with no single solution for all cases.
