The error is indicating that the PSCI interface Qemu is providing to the elfloader is HVC based, but the elfloader doesn’t support this interface. (It only supports the SMC interface). seL4_tools/elfloader-tool/src/arch-arm/drivers/smp-psci.c at master · seL4/seL4_tools · GitHub
Qemu does provide an SMC based interface if the machine option virtualization is set to on. This causes the elfloader to loaded into EL2 and the PSCI interface is SMC based.
You can get the simulate script generated by the build to launch qemu with this option by adding -DKernelARMHypervisorSupport=ON to your init args. This will have the effect of building the kernel with hypervisor support enabled though and it will run in EL2.
Alternatively you can edit the qemu launch command to set virtualization=on and the elfloader has builtin support to switch down to EL1 and launch seL4 in EL1 once the CPU cores are started.