diff --git a/pkg/recipes/terraform/execute.go b/pkg/recipes/terraform/execute.go
index 18cf5c1f90..232b548bda 100644
--- a/pkg/recipes/terraform/execute.go
+++ b/pkg/recipes/terraform/execute.go
@@ -20,11 +20,14 @@ import (
 	"context"
 	"errors"
 	"fmt"
+	"os"
+	"strings"
 	"time"
 
 	install "github.com/hashicorp/hc-install"
 	"github.com/hashicorp/terraform-exec/tfexec"
 	tfjson "github.com/hashicorp/terraform-json"
+	"github.com/radius-project/radius/pkg/corerp/datamodel"
 	"github.com/radius-project/radius/pkg/metrics"
 	"github.com/radius-project/radius/pkg/recipes"
 	"github.com/radius-project/radius/pkg/recipes/recipecontext"
@@ -88,10 +91,12 @@ func (e *executor) Deploy(ctx context.Context, options Options) (*tfjson.State,
 		return nil, err
 	}
 
-	// Set environment variables for the Terraform process.
-	err = e.setEnvironmentVariables(ctx, tf, options.EnvConfig)
-	if err != nil {
-		return nil, err
+	if options.EnvConfig != nil {
+		// Set environment variables for the Terraform process.
+		err = e.setEnvironmentVariables(ctx, tf, &options.EnvConfig.RecipeConfig)
+		if err != nil {
+			return nil, err
+		}
 	}
 
 	// Run TF Init and Apply in the working directory
@@ -200,13 +205,14 @@ func (e *executor) GetRecipeMetadata(ctx context.Context, options Options) (map[
 	}, nil
 }
 
-// setEnvironmentVariables sets environment variables for the Terraform process by reading values from the environment configuration.
+// setEnvironmentVariables sets environment variables for the Terraform process by reading values from the recipe configuration.
 // Terraform process will use environment variables as input for the recipe deployment.
-func (e executor) setEnvironmentVariables(ctx context.Context, tf *tfexec.Terraform, envConfig *recipes.Configuration) error {
-	if envConfig != nil && envConfig.RecipeConfig.Env.AdditionalProperties != nil {
-		envVars := map[string]string{}
+func (e executor) setEnvironmentVariables(ctx context.Context, tf *tfexec.Terraform, recipeConfig *datamodel.RecipeConfigProperties) error {
+	if recipeConfig != nil && recipeConfig.Env.AdditionalProperties != nil && len(recipeConfig.Env.AdditionalProperties) > 0 {
+		// populate envVars with the environment variables from current process
+		envVars := splitEnvVar(os.Environ())
 
-		for key, value := range envConfig.RecipeConfig.Env.AdditionalProperties {
+		for key, value := range recipeConfig.Env.AdditionalProperties {
 			envVars[key] = value
 		}
 
@@ -218,6 +224,19 @@ func (e executor) setEnvironmentVariables(ctx context.Context, tf *tfexec.Terraf
 	return nil
 }
 
+// splitEnvVar splits a slice of environment variables into a map of keys and values.
+func splitEnvVar(envVars []string) map[string]string {
+	parsedEnvVars := make(map[string]string)
+	for _, item := range envVars {
+		splits := strings.SplitN(item, "=", 2) // Split on the first "="
+		if len(splits) == 2 {
+			parsedEnvVars[splits[0]] = splits[1]
+		}
+	}
+
+	return parsedEnvVars
+}
+
 // generateConfig generates Terraform configuration with required inputs for the module, providers and backend to be initialized and applied.
 func (e *executor) generateConfig(ctx context.Context, tf *tfexec.Terraform, options Options) (string, error) {
 	logger := ucplog.FromContextOrDiscard(ctx)
diff --git a/pkg/recipes/terraform/execute_test.go b/pkg/recipes/terraform/execute_test.go
index 431cbf3679..2baa02243d 100644
--- a/pkg/recipes/terraform/execute_test.go
+++ b/pkg/recipes/terraform/execute_test.go
@@ -18,6 +18,7 @@ package terraform
 
 import (
 	"path/filepath"
+	reflect "reflect"
 	"testing"
 
 	"github.com/hashicorp/terraform-exec/tfexec"
@@ -168,8 +169,56 @@ func TestSetEnvironmentVariables(t *testing.T) {
 
 			e := executor{}
 
-			err = e.setEnvironmentVariables(ctx, tf, tc.opts.EnvConfig)
+			err = e.setEnvironmentVariables(ctx, tf, &tc.opts.EnvConfig.RecipeConfig)
+
 			require.NoError(t, err)
 		})
 	}
 }
+
+func TestSplitEnvVar(t *testing.T) {
+	tests := []struct {
+		name    string
+		envVars []string
+		want    map[string]string
+	}{
+		{
+			name:    "nil input",
+			envVars: nil,
+			want:    map[string]string{},
+		},
+		{
+			name:    "empty input",
+			envVars: []string{},
+			want:    map[string]string{},
+		},
+		{
+			name:    "single variable",
+			envVars: []string{"VAR1=value1"},
+			want:    map[string]string{"VAR1": "value1"},
+		},
+		{
+			name:    "multiple variables",
+			envVars: []string{"VAR1=value1", "VAR2=value2"},
+			want:    map[string]string{"VAR1": "value1", "VAR2": "value2"},
+		},
+		{
+			name:    "variable with no value",
+			envVars: []string{"VAR1="},
+			want:    map[string]string{"VAR1": ""},
+		},
+		{
+			name:    "variable with equals sign in value",
+			envVars: []string{"VAR1=value1=value2"},
+			want:    map[string]string{"VAR1": "value1=value2"},
+		},
+	}
+
+	for _, tt := range tests {
+		t.Run(tt.name, func(t *testing.T) {
+			if got := splitEnvVar(tt.envVars); !reflect.DeepEqual(got, tt.want) {
+				t.Errorf("splitEnvVar() = %v, want %v", got, tt.want)
+			}
+		})
+	}
+}
diff --git a/test/functional/shared/resources/testdata/corerp-resources-terraform-redis.bicep b/test/functional/shared/resources/testdata/corerp-resources-terraform-redis.bicep
index e810ade66d..a5619fd0af 100644
--- a/test/functional/shared/resources/testdata/corerp-resources-terraform-redis.bicep
+++ b/test/functional/shared/resources/testdata/corerp-resources-terraform-redis.bicep
@@ -17,6 +17,12 @@ resource env 'Applications.Core/environments@2023-10-01-preview' = {
       resourceId: 'self'
       namespace: 'corerp-resources-terraform-redis-env'
     }
+    recipeConfig: {
+      env: {
+        MY_ENV_VAR_1: 'env-var-value-1'
+        MY_ENV_VAR_2: 'env-var-value-2'
+      }
+    }
     recipes: {
       'Applications.Core/extenders': {
         default: {