California’s energy commission has promised millions of dollars to a struggling corn ethanol business founded by a political ally – and generous campaign contributor – to Gov. Arnold Schwarzenegger despite public assurances that the commission’s environmental funds would not be used to subsidize that technology.

The money comes from a tax on car owners passed three years ago that goes to a fund for clean-energy technologies. When the fund was set up, its backers said it would not be used for corn ethanol, a decades-old gas additive that many environmental scientists argue is at least as bad for the planet as oil.

The decision to use the fund for an ethanol subsidy has the program’s creator crying foul.

“It’s appalling. We gave them a very clear direction where these funds should be going,” said former Assembly Speaker Fabian Nuñez, who wrote the bill that created the Alternative Fuel and Vehicle Technology Program. “Ethanol is yesterday’s news. It seems like there’s some inside deal going on.”

Pacific Ethanol, the largest of four companies eligible for up to $15 million in new subsidies offered under the program, was founded by former California Secretary of State Bill Jones, a fixture in the state Republican Party who has given nearly $70,000 to Schwarzenegger’s campaigns, state records show.

The firm filed for bankruptcy protection last year. Its plants in Stockton and Madera are now idle but would restart in a matter of months if the promised subsidies come through, which is contingent on passage of the long-overdue state budget.