If I may indulge in a frame challenge.
A group of wandering murderers who, without provocation, attack an intelligent sentient being deserve what they get. This is especially so since, earlier in the module:
There is an evil Red Wizard of Thay who the party is expected to deal with in a non-violent fashion.
There are any number of ways that the party could interact with the dragon to their mutual benefit, albeit not without risk. From the Monster Manual p.95 (my emphasis):
The most cunning and treacherous of true dragons,
green dragons use misdirection and trickery to get the
upper hand against their enemies. Nasty tempered and
thoroughly evil, they take special pleasure in subverting
and corrupting the good-hearted. In the ancient forests
they roam, green dragons demonstrate an aggression
that is often less about territory than it is about gaining
power and wealth with as little effort as possible.
Green dragons are consummate liars and masters of
double talk. They favor intimidation of lesser creatures,
but employ more subtle manipulations when dealing
with other dragons. A green dragon attacks animals and
monsters with no provocation, especially when dealing
with potential threats to its territory. When dealing with
sentient creatures, a green dragon demonstrates a lust
for power that rivals its draconic desire for treasure, and
it is always on the lookout for creatures that can help it
further its ambitions.
A green dragon stalks its victims as it plans its
assault, sometimes shadowing creatures for days.
If a target is weak, the dragon enjoys the terror its
appearance evokes before it attacks. It never slays all its
foes, preferring to use intimidation to establish control
over survivors. It then learns what it can about other
creatures' activities near its territory, and about any
treasure to be found nearby. Green dragons occasionally
release prisoners if they can be ransomed. Otherwise, a
creature must prove its value to the dragon daily or die.
There are plenty of levers here that a socially adept party can manipulate. It the party can give this dragon what it wants then they are in a position to make a deal.
Even if the situation deteriorates to violence, it is unlikely to result in a TPK since green dragons don't do that! At worst it will kill one or two, capture as many as it can and scare the rest off. The adventuring opportunities in being a prisoner/slave of a green dragon and having to convince it of your worth each and every day are huge!
Oh, and Phandelver is deliberately set up as a sandbox campaign - your players should know, because you tell them, that in this type of campaign they will encounter things that they can't kill and that will kill them. The appropriate response to hearing about or finding signs of a dragon is to go somewhere else!
Either will work fine.
First, I hope it's obvious that creating L4 second PCs for each player and starting during chapter 2 poses neither narrative nor mechanical problems--it's basically exactly what's intended.
As for starting at chapter 1 with new first-level characters, Storm King's Thunder is designed to start with a full party at level 1. At worst case you'll have two L5 and two L1 PCs; the 5s will grossly outpower the 1s, allowing you to breeze through encounters pretty quickly. But Those L5s will be gaining little 25XP and 50XP increments, which won't do much for them; the L1s will be L3 within a couple of days and, for the rest of the campaign, will alternate between lagging by one level or being at the same level. (The XP progression has you in mind! Your second set of PCs may even be 4th level before the first set hits level 5--look closely at the XP chart on PHB15.)
That said, I advise starting the two new PCs at L1.
If I recall correctly, your two players are relatively new to the game. Managing two PCs isn't a crazy task, but using the first few levels as designed--to teach them the abilities of that PC--is going to be a useful construct. (See "Tiers of Play," PHB 15)
Best Answer
Given how dangerous a young dragon's breath attack can be to low level players, I think you should let them do it.
If anything having a couple of cannon fodder NPCs can help liven up the experience should they get blown away.
Make sure they require a considerable sum of money to be hired for such a dangerous task. If they survive, then they might covet some of the items in Venomfang's lair, which could create some strife within the party as well.
In D&D you should let your players take whatever approach they want, you just need to make sure there are trade-offs to doing so.