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Even oil rich countries are concerned about emission although the fuel cost is very cheaper in their countries. This prompt them to encourage fuel efficient cars while implementing tough emission norms that are exceeding the western countries norms. This prompted automotive manufacturers who produce the vehicles that consume gallon of fuel to per kilometers to meet these countries new emission norms so as to retain their market share.
This is the reason for down sizing the engine and enhancing the performance of bigger vehicles.
It is true that as we move further into the emissions regulations, they tend to get more and more stringent. The introduction of latest CAFE standards and European CO2 limits, are driving downsizing exercises.
An after treatment system is capable of producing very clean tailpipe emissions. But, they add onto cost and weight. A more effective way to reduce emission for kilometers traveled, is to downsize the engine. It would be essential to ensure more efficient combustion to maintain the performance target. An added advantage of downsizing is significantly reduced engine weight - further improving fuel efficiency (alternately, an increased weight capacity). A lot of downsizing projects tend to further recover wasted energy, to improve fuel efficiency.
A good example is the Ford EcoBoost family of engines. The3-cylinder version of this family is especially noteworthy for its small footprint and reduced cylinders.
Obviously space is the main issue of value, besides, by going to V or Transverse or even pancake design this is all an ability to even be able to increase more number of cylinders for more power and finally greater engine performance!!
