Read aguanomics http://www.aguanomics.com/ for the world’s best analysis of the politics and economics of water This story explains how California water agencies spent $350 million subsidizing lawn removal so that people
would should might use less water.
While this program was a success in terms of spending, I’m not sure it was either efficient, sustainable or equitable.
In terms of efficiency, it’s clear that higher water prices would encourage people to use less water on all margins, i.e., by watering less but also fixing leaks, etc.
In terms of sustainability, “the jury is still out” as there’s no sign that (a) use in those households fell (the rebound effect) or that (b) use by neighbors didn’t consume the savings.
In terms of equity, you have to ask “who paid $350 million?” and answer: ratepayers who saw increases in their bills. Assuming that that wealthier ratepayers were the ones with lawns (and the cash to pay the rest of the cost to rip them out), then the implication is that poorer ratepayers subsidized the richer ratepayers. Not exactly the way it’s supposed to work.
Bottom Line: If you want people to use less water, then raise the price. If you want to protect the poor from price rises and the utility from revenue fluctuations then raise the price as I suggest here.