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Donald Trump’s Pledge to Loosen Regulations Is a Heavy Lift for AFFH

President-elect Donald Trump’s promise to eliminate regulations on U.S. businesses will likely take years to fulfill given the complex steps involved in reversing them and political and legal challenges from Democratic lawmakers and state attorneys general.

Mr. Trump has said his administration will take aim at regulations across industries, and he will be backed by congressional Republicans eager to undo some of the more controversial Obama administration initiatives. Big targets include power-plant regulations and regulatory rules imposed on banks and financial institutions after the financial crisis of 2008, though the effort will also reach deep into the federal bureaucracy to include rules involving labor, telecommunications and health care.

Mr. Trump has a handful of ways to reach his goal, but they mostly point to a slow death of attrition for the Obama rules rather than an immediate elimination. He can opt not to defend rules currently tied up in court. His federal agencies can write new rules to justify revoking the ones he wants to eliminate. He can work with the GOP-controlled Congress to nullify recently completed regulations and restrict funding to certain parts of departments as a de facto way to hamstring a rule’s force.

In some cases, replacing rules will be as arduous as making them in the first place, particularly in the financial sector where some regulations have been issued by multiple agencies. The Volcker rule, which bans banks from making hedge-fund-like wagers, was adopted by five financial regulatory agencies. All five agencies would need to agree to changes for them to apply broadly.

The Trump administration could loosen its enforcement of rules promulgated under Mr. Obama. That could make a difference where rules can be interpreted subjectively, such as in the case of the Volcker rule.

But where explicit rules are on the books, companies would be taking a risk by not complying, and there is no guarantee that career government staffers would agree to simply drop their enforcement actions.

Experience shows the difficulty of unraveling rules. Eight years ago the incoming Obama team pledged to review rules from the George W. Bush administration, including many so-called “midnight regulations” that were pushed through as Mr. Bush was preparing to leave office.

But of the more than 4,500 proposed or final regulatory actions cleared by the Bush White House in eight years, Mr. Obama repealed just 74 in his first nine months in office, when rules are most-often revisited, according to a 2009 presentation by a former official of the White House Office of Management and Budget. Of those, only 34 were final rules.

Two Environmental Protection Agency rules are expected to be at the top of Mr. Trump’s target list: One sets the first-ever federal limits on carbon emissions from power plants and another puts more bodies of water under federal jurisdiction. Both have been blocked by different federal courts—the carbon rule by the Supreme Court—until litigation is over.

But conservative and liberal legal experts agree Mr. Trump’s EPA will likely have to go through new rule-making processes to eliminate both the water and carbon rules. That process could take two years because a notice of public comment is required while the EPA justifies its decision from both a policy and legal perspective.

Eric Schneiderman, the Democratic attorney general of New York, indicated he could copy the strategy of GOP attorneys general have used during the Obama administration: Continuously suing EPA in response to its actions, or non-actions. “I stand ready to use the full power of my office to compel their [environmental rules] enforcement by the agency,” Mr. Schneiderman said this week in response to Mr. Trump’s selection of Scott Pruitt, Oklahoma’s Republican attorney general, to head his EPA.

Similarly, in the financial realm, repealing a rule by the Labor Department holding brokers to stricter ethical standards when providing retirement savings advice won’t be easy, since it has already been completed.

The department has the authority to revoke the measure outright, but like the EPA, it must go through a rule-making process like the yearslong one that led to its adoption, according to a report by the law firm Morgan, Lewis & Bockius LLP.

Other options include delaying the measure beyond its April effective date or issuing guidance that could give firms more leeway in complying. A legislative effort to scrap the rule may be the cleanest approach, but it would face strong opposition from Democrats in the Senate, including Sen. Elizabeth Warren of Massachusetts.

“There are a lot of options, but none of them are without complications or difficulties,” said Barbara Roper, a proponent of the so-called fiduciary rule and the head of investor protection at the Consumer Federation of America.

A 1996 law, the Congressional Review Act, allows Congress to repeal newer regulations with a lower threshold of Senate votes than most legislation requires. Once Mr. Trump is inaugurated, Republicans could use it to pare back rules made since June 2016, according to a recent estimate by the Congressional Research Service.

The American Action Forum, a conservative think tank, counts 48 rules that may fall in that category, including worker overtime regulations and a rule forcing energy companies to disclose payments made to foreign governments.

Another potential target for invoking the law is an Interior Department rule, issued last month, cutting methane emissions from oil and natural-gas wells on federal lands.

The law has been used successfully only once because the sitting president often vetoes the measure, and Congress typically doesn’t have the needed support—two-thirds of both chambers—to override the veto.

Some rules will be particularly difficult to undo. The Federal Reserve has issued a litany of regulations impacting large banks, such as annual “stress tests” of banks’ resilience. Those rules took the Fed years to draft, and could in turn take years to revise.

Mr. Trump’s Fed appointees also wouldn’t be able to immediately order a redraft of the rules. That would need to be approved by a majority of the Fed’s seven-seat governing board, and Mr. Trump may not have the chance to appoint a majority of Fed governors until 2018.

Mr. Trump’s team also wouldn’t be able to do away with certain rules because they are baked into existing law. The 2010 Dodd-Frank law requires a litany of financial rules, including stress tests at banks with more than $50 billion in assets and restrictions on executive compensation.

His appointees could have a greater immediate impact by softening the enforcement of existing rules. They could take a less hard-line view when designing banks’ stress tests or offer more leeway meeting compliance deadlines for environmental rules, for example.

“Even if the rule book doesn’t change, the way the rule book is applied could change,” said David Portilla, a partner at Debevoise & Plimpton LLP. “There will be change, but it’s going to be slower than the initial headlines and not as big as the initial headlines.”

Write to Amy Harder at amy.harder@wsj.com and Ryan Tracy at ryan.tracy@wsj.com

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