Can't set env variables in package.json scripts?

import * as schema from "./schema";
import { sql } from "@vercel/postgres";
import postgres from "postgres";
import {
  drizzle as VercelDrizzle,
  type VercelPgClient,
  type VercelPgDatabase,
} from "drizzle-orm/vercel-postgres";
import {
  drizzle as LocalDrizzle,
  type PostgresJsDatabase,
} from "drizzle-orm/postgres-js";
import { env } from "@/env";

// https://www.thisdot.co/blog/configure-your-project-with-drizzle-for-local-and-deployed-databases
// Reconfigured for test (local) and production (vercel+supabase) databases following this guide as a baseline

// Define a type that represents the structure of the database schema.
type MySchema = typeof schema;

// Define a variable 'db' that can be either a VercelPgDatabase or a PostgresJsDatabase,
// both typed with the schema structure.
let db: VercelPgDatabase<MySchema> | PostgresJsDatabase<MySchema>;

console.log("NODE_ENV: ", process.env.NODE_ENV);
// This shows that playwright tests are coming through as NODE_ENV=development
console.log("APP_ENV: ", process.env.APP_ENV);
console.log("ENVIRONMENT: ", process.env.ENVIRONMENT);

// Check custom APP_ENV variable to determine which database to use
// This can be refactored later to separate production and development if necessary
if (process.env.APP_ENV === "test") {
  // In the test environment, use a local Postgres database.
  // The TEST_DATABASE_URL environment variable should contain the connection string.
  const migrationClient = postgres(process.env.TEST_DATABASE_URL!); // removed 'as string' from end
  // Initialize the database with the local Postgres client and the defined schema.
  db = LocalDrizzle(migrationClient, { schema });
  //db = LocalDrizzle(migrationClient);
  console.log("Using Local Postgres for Testing");
} else {
  // In production or development, use Vercel Postgres with the defined schema.
  db = VercelDrizzle(sql as VercelPgClient, { schema });
  //db = VercelDrizzle(sql);
  console.log("Using Vercel Postgres (supabase)");
}

  "scripts": {
    "test": "APP_ENV=test ENVIRONMENT=test playwright test",
  }