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More correctly, torque is a measure of efficiency and horsepower is an extrapolation of torque.
If there are 2 engines of a given identical displacement burning fuel at an identical rate, the one producing more horsepower is more efficient. And that is entirely possible in a modern ICE - the computers are most of the difference between a 2007 ICE and a 1990 ICE.
What can be done is to use this increased efficiency to allow for smaller displacement engines that use less fuel to produce the same horsepower. In Europe they used to (maybe still do) have outrageous taxes on engine displacement - a much better approach than CAFE and gas guzzler taxes because it encourages efficiency. Taxes on turbo and superchargers would be a good idea as well, since they allow an engine of a given displacement to burn more fuel.
And you are absolutely right about weight. Work is a measure of mass moved over time. Torque is a measure of work. And torque in an ICE is also, to a large degree, a function of the amount of fuel burned. Less weight means less work, which means less fuel burned to cover a given distance in a given time in a car of a given weight. Weight is the hidden enemy here, as subcompact cars have pretty much doubled in mass over the last 20 years. If we went back to 1985 weights for small cars,through the use of advanced materials and manufacturing techniques, fleet fuel efficiency would be greatly enhanced.
