With lawmakers in the U.S. and Europe planning strict new emissions and fuel economy regulations over the coming years, carmakers have been forced into drastically changing their thinking about all aspects of vehicle design. No stone is being left untouched as engineers look at ways to make cars greener, and two solutions appear to be emerging as the most feasible options for carmakers.

One avenue is to introduce complicated and expensive hybrid drivetrains, while the other is the introduction of smaller engines packed with proven powertrain technologies such as direct injection and turbocharging. One of the leaders in the industry is France’s PSA Peugeot-Citroen, which has announced it is developing a new family of compact three-cylinder petrol engines displacing just 1.0L.

Power outputs will range from 70 to 100hp and the engines will emit no more than 100g of CO2 per km. PSA Peugeot-Citroen hopes to build up to 600,000 units of the efficient engine each year from 2011 onwards and is now planning to build a new engine plant at Tremery in France. A second plant will be built at an Eastern Europe site by 2012 although no decision has been made on a location for it, reports Thomson Financial.

Volkswagen has shown that compact engines don’t have to be restricted to tiny minicars, and can even be a little sporty, with the introduction of its 125hp 1.4L TFSI engine in the Golf GT. Mercedes-Benz, too, is considering replacing its entry-level 1.8L Kompressor engine with a new 1.6L forced induction unit and this would have to power a car the size of the C-Class sedan.

Pictured above is the Peugeot 1007, one of the smallest cars offered by the French carmaker.