ETSI Tx Power standard for short Range Devices. I am Confused
On a more serious note, the 500mW limit applies to two categories of transmitter namely smart meter reading and stolen goods tracking devices. Clearly the stolen goods tracking devices are going to be battery powered but so are gas meters and water meters. Electricity meters can derive local power of course.

When a device receives an interrogation transmission it has to wake up quickly and deliver a robust response that minimizes the likelihood of the interrogator receiving that response in error. Therefore, the ability to transmit a higher power level will reduce this risk. Remember this is the 169 MHz band and there is a fair bit of traffic in some countries (France uses ERMES for paging and I think Italy does). The spec is pan European so it has to cater for a broad range of different areas in different countries.

It boils down to this - sending a single strong RF response from a battery powered piece of equipment is more ecological than losing packets and retransmitting the message. Here is a document from TI that goes into some details. What is true for battery-powered smart meters is true of device tracking systems.