The issue here is that, in most cases, while engine downsizing tends to provide some decrease in emissions, fuel consumption isn't all that much better.

If you look at the Fiat 0.9 Twinair 2 cyclinder engine real world consumption is somewhere between 35 and 40MPG despite a manufacturer claimed 68MPG. You cannot have a car with less than 80BHP either, it would be undriveable. In comparison, the VW EA888 2.0 turbo petrol engine (in the Golf GTI, Golf R, etc) has the same real-world consumption (because I drive one), yet can produce up to 300BHP at the top of the rev range if and when you need it. The reason for this is that the engine produces so much power and torque in the low-mid rev range compared to the 0.9 Twinair, the same rate of acceleration is possible without having to work the engine at all. It's not until you put the car into Race mode and use full open throttle that consumption drops below 30MPG to the mid 20s. What's more, in the case of automatic transmissions, gear ratios and software can be made to work the engine at low RPMs 99% of the time to decrease fuel consumption. This isn't possible with the 0.9 Twinair engine because it produces too little power at low revs.