The command you are executing to start your tests is using POSIX shell syntax for setting the environment variable PWDEBUG, but you seem to be executing it in a PowerShell.

The PowerShell syntax is a bit different. Try executing the following command instead:

$Env:PWDEBUG = 1; pytest -s test_saucedemo.py

See the question PowerShell: Setting an environment variable for a single command only.