There's the typical flawed premise that economics can quantify everthing, when it can only quantify something when it has been comodified, and thus is completely blind to various things, the environment being one of them.
For example, the air that you breath is completely worthless from economics' point of view, until someone bottles and sells it*, but in reality it's extremely valuable ("I'll cut off your air supply...").
"Rising productivity is thus the secret to rising living standards."
This only holds true when living standards is measured purely as the amount of material possessions owned, which for the majority of people isn't the case. There's lots of other factors for quality of life - stresslevel,amount of free time, friends & family, environment, etc.
Indeed, if raising producitivity raises the amount of pollution, living standards will actually decrease ( at least for those effected, which eventually is everyone), even if if economics can't see it.
The directive is there to rectify the economic system's myopic view of the world. The FUD that this will stifle innovation (so no-one will come up with an innovative energy saving idea then?), would appear to come from a "Free market"** -tard perspective.
"Tim Worstall <snip> writes for <snip> the Adam Smith Institute, among others."
Somehow I'm not surprised. I wonder if Tim has ever considered that belief in the invisible hand of the market is a bit like believing in the tooth fairy. Ok for kids, but no way to run a economic system in the 21st century.
Most forms of human activity are regulated (by laws, customs, social norms, etc.) for better or for worse, why should material production be exempt? Do you actually *want* more pollution?
* Which given the level of air pollution in the UK, won't be long.
** You can't use the adjective free with the noun market unless you're talking about about a collection of stalls where you don't have to pay for anything. What is really meant is unregulated market, and we all know how much of a sucess that is...