Right now, if one country limits the amount of oil it uses, that just makes oil cheaper for another country which hasn't set limits. 50 years from now, Saudi Arabia could be still burning its last drops of oil to produce electricity, while the rest of the world has moved on to.
So yes, you're correct that improving internal combustions engines might not help at all, but that seems to be true of any other technology, too.
The only thing that will save out planet is our ability to organize ourselves globally to drastically cut emissions.
Side note: don't take the downvotes here personally. HN is a place where quality discussions happen, and a lot of folks would prefer to simply downvote something they don't agree with rather than clutter up the whole thread with responses. :)
The Chinese don't like the fact that coal mining kills 1000s of their citizens each year, nor do they like the smog. They know growth in their economy has to come from an alternative fuel.
Making a better engine might slightly perturb the virtuous path we're on. If it does, it will slightly delay the trend away from fossil fuels. But mainly it is irrelevant.
We are now beginning to have good products on the market that are sustainable: electric and solar. Making internal combustion engines more efficient seems a dead end. Or worse - making them more efficient may delay the move to what is actually sustainable.
Side note: I regret adding my comment about downvotes. But I will leave it to preserve sense of thread and to remind me not to go there again.