I think we all know that there is so much we could be doing to utilise our energy better; combined heat and power generation, industrial energy recycling, alternative energies, robust mass transit, high speed rail ra, ra, ra. That's great, very worthy and very convenient for a lot of people a lot of the time, environment, society, ra, ra, ra. But its not getting my heart racing the way gunning my old V8 did.
What I want to know is, in a world where right from the start we made the most use of the energy we generated, can musclecars still exist? Perhaps, in a world where much of the mundane transport market is taken up by robust mass transit, cars are seen more as toys and therefore musclecars are even faster?
This really depends on the people involved. The biggest issue here is the not-insignificant problem that the environment and energy concerns came long after automobiles did. The problem with your theory is that if the vast majority of automobiles are owned by people who just use them for everyday transportation, musclecars will be more like exotics - very expensive, to make up for the fact that they are fewer and farther between. In such a world, the "musclecars" would be smaller things without V8 engines by now - they would most likely be big-engine/small-car concoctions of the modern era, cars like the Ford Focus RS, Audi RS6 and Renault Clio V6, using engines from bigger cars of that same manufacturer inside smaller chassis. Liking cars is the nature of many humans, and there are cases where V8-powered vehicles are gonna be in use - not all pickup trucks are driven by suburban yuppies, some actually are used by industrial workers, farmers and emergency personnel, after all - so there will still be bigger motors to shove in smaller cars.
Musclecars in the classical mold - medium-sized cars with gargantuan engines - make little sense from many standpoints, particularly handling, which for 1960s and 1970s musclecars isn't all that good. I once drove a 1970 Dodge Challenger with a 440 cubic inch engine. It was awesomely fast (when it could get traction), but not all that comfortable to drive and handled like a turd on wheels - I wouldn't want one unless I could make it drive better and handle better. My Pontiac G8 is what I like - a substantial-size car (I am 6'5", I don't fit in a small car) with excellent handling (except on a slippery road - I found that out the hard way one underwear-ruining night in a Seattle suburb about two years ago) and quite fast in a straight line.
I think what would more likely exist in a scenario you envision, Riain, is many examples of smaller sports cars and sports coupes in the Lotus Elise/Opel Speedster/Mazda MX-5 Miata/Toyota MR2/Alfa Romeo Spyder/Caterham 7/Pontiac Solstice mold, the idea being smaller fun cars that people can get their rocks off in, perhaps with some of them having bigger powerplants for people who want more power. (I can imagine a Solstice with the GM High-Output 3.6-liter V6 or the Miata with a turbocharged RX-7 motor.) I can also see many fast sports coupes and small sedans in the Lancer Evolution/WRX STi/Delta Integrale/Focus RS mold. To be blunt, making dragsters out of limos is, energy-wise, incredibly wasteful, and as amazing as it is to make a two and a half ton tank like most AMG Mercedes cars move as fast as they do, it's wasteful on energy.
I think perhaps the Germans here are the worst plot-losers. The first BMW M3 and Volkswagen Golf GTI models were the pocket hunters of their era, with smaller four-cylinder engines that still drove them along at respectable speeds, but their true prowess was in cornering. The E30 M3 is said to be one of the best drivers' cars ever made, even today twenty years after the last one was built. Now, the M3 has a four-liter V8 under its hood. Its orders of magnitude faster and still a helluva steer, but many feel that its lost the plot. The Golf is even worse. The newest VW Polo is slightly longer and wider than the original Golf of 1974, and the Golf has gotten bigger very generation. The newest GTI is a good set of wheels, but requires a 200-horsepower turbocharged engine to do it.
In your world, Riain, the musclecars from Detroit and Australia woulda died in the 1970s, as technology evolved. Turbocharging would have been virtually universal for performance cars by the early 1980s. By the 1990s, GM turbocharged Buick V6 would probably power most of its fast cars, including the Corvette, though high-tech engines like the Lotus-developed ZR-1 V8 would probably still make it.