Can I reduce capacity of a water heater?
A larger tank does not cost more energy. The only thing that costs energy is when the water cools - and that depends only on the surface area, not the amount of water in the tank. (Mathematically volume increases by the 3rd power, but surface area only by the 2nd power.)

So to save energy add extra insulation around the tank. Reducing the amount of water in the tank will do nothing since it won't save all that much surface area (and potentially none at all).

(Yes, it takes more energy to heat the water in the first place, but after that it doesn't matter - and you already heated it.)