Self‑Answer: Root Cause and Fix

Apologies for the confusion and for taking up your time with this—it was my own mistake. I really appreciate your help.

After all the investigation above, I finally discovered the true culprit: a project‑root .env file that I had added for other tooling (e.g. to set JAVA_HOME for a Processing‑like Python library py5). That file contained something like:

# .env at the workspace root
JAVA_HOME=C:\Some\Java\Path
PATH=$JAVA_HOME$;$PATH

Why this caused the issue

• Normal execution in VSCode’s Integrated Terminal sources .env and appends it to the existing environment, so your real PATH (and PROGRAMFILES, LOCALAPPDATA, etc.) remain intact—PowerShell and CMD subprocesses work fine.
• Debug mode with debugpy, however, appears to load only the variables from .env and override the entire process environment. As a result:
  • PATH becomes exactly C:\Some\Java\Path\bin;$PATH (no Windows system paths)
  • powershell.exe can’t be found (or finds no inherited variables like PROGRAMFILES)
  • Any $env:… lookups return empty strings

The fix

Remove or adjust the .env so it doesn’t clobber your entire PATH. For example, change it to extend rather than replace(change $VAR to %VAR%):

# .env — extend the existing PATH instead of overwriting it
JAVA_HOME=C:\Some\Java\Path
PATH=%JAVA_HOME%;%PATH%

After making one of these changes, PowerShell subprocesses under debugpy will once again inherit the full environment, and $env:PROGRAMFILES, $env:LOCALAPPDATA, etc. will be populated as expected.