Private-equity firm Kimmeridge Energy Management has pledged as much as $200 million to back Chestnut Carbon LLC, a startup dedicated to generating carbon-offset credits from forests.

As part of that process, New York-based Chestnut plans to develop new forests, including by planting trees on 500,000 acres across the U.S. The startup recently acquired Forest Carbon Works PBC, a public-benefit corporation based in Minneapolis that helps small landowners obtain carbon credits and earn income by preserving and managing woodlands in their properties.

With its investment in Chestnut, Kimmeridge expects to benefit from the expanding market for carbon credits as businesses increasingly try to offset their emissions and make good on net-zero pledges, said Ben Dell, a managing partner and co-founder of the New York-based firm. He added that there aren’t enough eligible forests to meet the demand for tradable carbon credits, while buyers often question the authenticity of existing credits.

“There’s a growing acceptance that carbon credits are going to be part of the solution, that you can never get to net zero just by reducing your [carbon] footprint,” Mr. Dell said. “The big question out there is the quality of those offsets.”

Demand for voluntary carbon credits world-wide more than doubled during the four years ending in 2020, to a level that offsets the equivalent of 95 million metric tons of carbon dioxide a year, according to data provider Trove Research Ltd. Carbon-credit transactions totaled $748 million last year through August, 58% more than in all of 2020, according to Ecosystem Marketplace, a provider of environment-related market data.

Ben Dell, managing partner, Kimmeridge Energy Management.

Photo: Matt Greenslade

A single carbon credit offsets one metric ton of carbon dioxide. Maine’s Passamaquoddy tribe raised more than $30 million by selling such credits tied to almost 98,500 acres of timberland, The Wall Street Journal has reported.

Other ways to create carbon credits include developing renewable energy projects such as wind or solar. According to the World Bank, 25 carbon-crediting mechanisms had been implemented globally by last April, and six more were under development.

Kimmeridge expects Chestnut to generate offsets for greenhouse gas emissions equivalent to as much as 3 million metric tons of carbon dioxide over the next two years or so and 10 million annually within a decade, Mr. Dell said. Chestnut is in talks with states and conservation agencies and is looking to buy land on its own, he said.

Forest Carbon’s focus on owners of smaller woodlands will give the business a “retail strategy,” Mr. Dell said. The American Forest Foundation estimates that families or individuals own roughly a third of all U.S. forests, or 290 million acres.

Chestnut sees opportunities to develop forest projects in regions such as the Southeast, particularly the Mississippi Valley, the Pacific Northwest and the Northeast, Mr. Dell said. It will also seek to expand its reach among landowners in the Appalachian region, where family-owned forests prevail, he said.

Kimmeridge, which primarily invests in oil-and-gas assets and companies, has sought to both capitalize on the changes in the sector and to drive them. For example, the firm has acted as activist investor in energy companies and called for the sector to create its own carbon-offset exchange.

Kimmeridge-backed Civitas Resources Inc., a publicly traded company that presents itself as a net-zero oil-and-gas producer, spends about $10 million annually on carbon offsets, in addition to efforts to curb its emissions, Mr. Dell said. He is chairman and interim chief executive of Denver-based Civitas.

Mr. Dell added that Chestnut creates another opportunity for Kimmeridge to participate in a changing market.

“People historically have bought land and undertaken conservation and restoration projects with no view of generating income. [With] carbon credits, we have the opportunity to make conservation a source of income generation and that’s really unique,” he said. “We can accelerate conservation through market forces.”

Write to Luis Garcia at luis.garcia@wsj.com