It's important to address two things: space flight is a tiny fraction of what these chemicals are used for, and nearly all mono-propellants are extremely hazardous to humans and like to spontaneously combust. This isn't a ban on "toxic propellants". It's a ban on an extremely dangerous and toxic chemical of which the aerospace industry uses a tiny portion.
I'll use hydrazine, a common propellant, as an example.
Its primary uses are water treatment, pharmaceuticals, polymers, and agrochemicals. Space flight uses a tiny fraction.
The EU space industry uses about 20 tons of hydrazine annually, mostly for satellite propulsion... The substance is manufactured outside Europe and brought in for purification and further refinement. Over 120,000 tons of hydrazine are manufactured globally every year. The majority is used as a foaming agent in the chemical industry. - Space News: Hydrazine ban could cost Europe’s space industry billions
Since the space industry uses such a tiny fraction, and its very restricted in its replacements, it's likely they will get an exception to continue using it until they develop something better.
As to the tongue in cheek comments like "technically oxygen is toxic", hydrozine is nasty stuff.
It's corrosive, carcinogenic, and toxic to humans. You can be exposed by breathing it, ingesting it, through the eyes, or through your skin. If you smell it you're already exposed. Tiny quantities attack the nervous system, liver, and kidneys. You need a full breathing apparatus to work with it. While it breaks down quickly in air, it lingers in water and soil.
It's highly energetic and hypergolic with many substances meaning it will spontaneously ignite when it comes into contact. That makes it a great choice as a propellant for things like maneuvering thrusters which have to reliably reignite many times and store lots of energy in a small space. But it makes it very dangerous to work with.
There are advantages for space flight, beyond general safety and the environment, to removing toxic, volatile substances from their spacecraft. Having hydrazine on board your space craft means ground crews handling the spacecraft must get suited up in protective gear with their own air supplies and follow careful safety procedures. This is slow and costly.
If there's a leak or explosion, toxic substances can be spilled downrange. This requires additional costly safety and cleanup measures over a wide area. Similarly if a spacecraft must be de-orbited the question of whether its toxic substances will burn up or reach the ground must be considered.
"Green" propellants remove the need for these extreme safety measures. While it's not hard to make a propellant safer than things like hydrazine, the challenge is finding a propellant as reliable, energetic, and stable at a reasonable cost. And it seems they've been found.
NASA is testing hydroxylammonium nitrate in space. Due to its higher specific impulse and higher density it is expected to perform 50% better than standard propellants. And it can be allowed to freeze whereas hydrazine must be kept liquid. LMP-103S has been tested gets about 30% better performance.
Spacecraft are limited in size as well as weight. They need propellant for station keeping and maneuvers. Better performance for a given volume means...
the satellite can either be fitted with a smaller tank, or the mission duration can be extended while retaining the same tank size.