Discretionary spending may be capped, but times are still flush for one group of federal clients—green energy companies. In September as the government headed toward a shutdown, the Department of Energy pushed out the door another $66 million in green-energy subsidies to 33 companies and research facilities. 

Some $34 million in grants were earmarked for "advanced liquid fuels" that are derived from gases, such as methane. Nearly 30% of those funds—almost $9.5 million—went to three companies, LanzaTech, Greenlight Biosciences and Coskata. What all three also have in common is investment by Khosla Ventures, the venture capital firm run by Vinod Khosla. The Silicon Valley investor has a knack for getting taxpayers to aid his companies. 

Vinod Khosla, founder of Khosla Ventures Reuters
 
Consider LanzaTech, which was founded in New Zealand and has offices in Illinois. In 2011, the Department of Energy announced that LanzaTech was one of three firms awarded $4 million each in grants to produce biofuels. The company also received a $3 million Federal Aviation Administration contract to work on "alternative" aviation fuel. LanzaTech's recent grant was for another $4 million and was the second largest of the 33 awards that the Energy Department announced. (The largest, $4.5 million, went to Greenlight, another Khosla-funded company.) 

In January, LanzaTech announced it was buying a cellulosic ethanol refinery in Soperton, Georgia, in a foreclosure auction for $5.1 million. The refinery owner, Range Fuels, was forced to liquidate despite being awarded a $76 million grant from the Energy Department in 2007 (it ultimately received $46 million) and a $80 million loan from the Department of Agriculture (it received about $40 million and repaid $2 million). 

The state of Georgia also provided money. 

You won't be shocked to learn that Khosla Ventures was a major investor in Range Fuels. The federal government lost more than $80 million on Range Fuels, and it is now investing another $4 million in a company buying assets of that previous failure. Mr. Khosla's venture company gets help coming and going. 

These recent federal grants were made a few months after Mr. Khosla hosted a fundraiser in June at his California home for the Democratic Senatorial Campaign Committee. Price of admission: $32,400. 

President Obama attended, as did Democratic Senators Michael Bennet (Colorado), Maria Cantwell (Washington) and Amy Klobuchar (Minnesota). 

A few days after the Energy Department announced its September grants, LanzaTech welcomed former Obama campaign director Jim Messina to its board of directors. When not dispensing his vast technical expertise about "advanced liquid fuels," Mr. Messina runs Organizing for America, which is Mr. Obama's vehicle for advanced liquid politics. 

Mr. Khosla tells us politics was not involved in the grants and that he hasn't visited the Energy or Agriculture departments or "talked to anyone in those organizations this year." He says he was only recently made aware of the LanzaTech and Coskata grants, and that GreenLight had applied for a grant before "we even decided to invest." 

He adds that these are "research grants" made through the Energy Department's ARPA-E program and are "not material compared to the commercial fundraising" of these companies. He nonetheless argues that ARPA-E funding "has been incredibly effective, and without it this sort of research would die." 

LanzaTech CEO Jennifer Holmgren says politics played no part in her company's grant. She says that such government grants allow companies to leverage their infrastructure to embark on "high-risk, long-term" projects that Wall Street or private investors wouldn't necessarily fund. 

The Energy Department claims its grants and loans are made on the merits, yet somehow big-dollar grants keep flowing to companies backed by the same handful of politically connected venture firms. The Obama appointees and career staff at Energy and Agriculture do not operate in a political vacuum; they are well aware who is connected and who isn't. 

Such political investing has resulted in such prominent green taxpayer failures as solar-panel market Solyndra (awarded a $535 million loan guarantee), the battery firm A123 (a $249 million grant), and electric car maker Fisker Automotive (a $529 million loan guarantee). If these investments are so wonderful, why can't Mr. Khosla and friends invest their own money and leave taxpayers out of it? 

Government has a role in funding basic research that can't otherwise attract private capital, but subsidies for commercial ventures lead to misallocated capital and taxpayer losses. They also increase political cynicism as taxpayers learn that the subsidies always seem to flow to the rich and powerful who finance the Democratic Party.