diff --git a/easybuild/tools/module_generator.py b/easybuild/tools/module_generator.py
index 3d9b32dbf5..3c33d725f2 100644
--- a/easybuild/tools/module_generator.py
+++ b/easybuild/tools/module_generator.py
@@ -42,6 +42,7 @@
 import tempfile
 from collections import defaultdict
 from contextlib import contextmanager
+from string import Template
 from textwrap import wrap
 
 from easybuild.base import fancylogger
@@ -117,6 +118,31 @@ def dependencies_for(mod_name, modtool, depth=None):
     return mods
 
 
+def wrap_shell_vars(strng, wrap_prefix, wrap_suffix):
+    """
+    Wrap variables $VAR or ${VAR} between wrap_prefix and wrap_suffix
+    Do not wrap escaped variables, but unescape them (e.g. $$VAR -> $VAR)
+    Do not touch invalid variables (e.g. $1, $!, $-X, $ {bad})
+    """
+    t = Template(strng)
+    mapping = {}
+
+    names = {
+        m.group('named') or m.group('braced')
+        for m in t.pattern.finditer(strng)
+        if (m.group('named') or m.group('braced'))
+    }
+
+    mapping = {name: f'{wrap_prefix}{name}{wrap_suffix}' for name in names}
+    wrapped = t.safe_substitute(mapping)
+
+    # remove quotes around the wrapped variables (in case the variable was quoted)
+    wrapped = re.sub(rf'"({re.escape(wrap_prefix)})(.*?)({re.escape(wrap_suffix)})"', r'\1\2\3', wrapped)
+    wrapped = re.sub(rf"'({re.escape(wrap_prefix)})(.*?)({re.escape(wrap_suffix)})'", r'\1\2\3', wrapped)
+
+    return wrapped
+
+
 class ModuleGenerator:
     """
     Class for generating module files.
@@ -1112,12 +1138,12 @@ def set_environment(self, key, value, relpath=False):
 
         set_value, use_pushenv, resolve_env_vars = self._unpack_setenv_value(key, value)
 
+        if resolve_env_vars:
+            set_value = wrap_shell_vars(set_value, r'$::env(', r')')
+
         if relpath:
             set_value = os.path.join('$root', set_value) if set_value else '$root'
 
-        if resolve_env_vars:
-            set_value = self.REGEX_SHELL_VAR.sub(r'$::env(\1)', set_value)
-
         # quotes are needed, to ensure smooth working of EBDEVEL* modulefiles
         set_value = quote_str(set_value, tcl=True)
 
@@ -1207,6 +1233,8 @@ class ModuleGeneratorLua(ModuleGenerator):
     IS_LOADED_TEMPLATE = 'isloaded("%s")'
 
     OS_GETENV_TEMPLATE = r'os.getenv("%s")'
+    OS_GETENV_PREFIX = 'os.getenv("'
+    OS_GETENV_SUFFIX = '")'
     PATH_JOIN_TEMPLATE = 'pathJoin(root, "%s")'
     UPDATE_PATH_TEMPLATE = '%s_path("%s", %s)'
     UPDATE_PATH_TEMPLATE_DELIM = '%s_path("%s", %s, "%s")'
@@ -1365,7 +1393,7 @@ def getenv_cmd(self, envvar, default=None):
         """
         Return module-syntax specific code to get value of specific environment variable.
         """
-        cmd = self.OS_GETENV_TEMPLATE % envvar
+        cmd = f'{self.OS_GETENV_PREFIX}{envvar}{self.OS_GETENV_SUFFIX}'
         if default is not None:
             cmd += f' or "{default}"'
         return cmd
@@ -1592,16 +1620,17 @@ def set_environment(self, key, value, relpath=False):
             if resolve_env_vars:
                 # replace quoted substring with env var with os.getenv statement
                 # example: pathJoin(root, "$HOME") -> pathJoin(root, os.getenv("HOME"))
-                set_value = self.REGEX_QUOTE_SHELL_VAR.sub(self.OS_GETENV_TEMPLATE % r"\1", set_value)
+                set_value = wrap_shell_vars(set_value, self.OS_GETENV_PREFIX, self.OS_GETENV_SUFFIX)
         else:
             if resolve_env_vars:
                 # replace env var with os.getenv statement
                 # example: $HOME -> os.getenv("HOME")
-                concat_getenv = self.CONCAT_STR + self.OS_GETENV_TEMPLATE % r"\1" + self.CONCAT_STR
-                set_value = self.REGEX_SHELL_VAR.sub(concat_getenv, set_value)
+                concat_prefix = self.CONCAT_STR + self.OS_GETENV_PREFIX
+                concat_suffix = self.OS_GETENV_SUFFIX + self.CONCAT_STR
+                set_value = wrap_shell_vars(set_value, concat_prefix, concat_suffix)
             set_value = self.CONCAT_STR.join([
                 # quote any substrings that are not a os.getenv Lua statement
-                x if x.startswith(self.OS_GETENV_TEMPLATE[:10]) else quote_str(x)
+                x if x.startswith(self.OS_GETENV_PREFIX) else quote_str(x)
                 for x in set_value.strip(self.CONCAT_STR).split(self.CONCAT_STR)
             ])
 
diff --git a/test/framework/module_generator.py b/test/framework/module_generator.py
index 4669cf6888..2ea5dc3521 100644
--- a/test/framework/module_generator.py
+++ b/test/framework/module_generator.py
@@ -38,7 +38,7 @@
 from easybuild.framework.easyconfig.tools import process_easyconfig
 from easybuild.tools import LooseVersion, config
 from easybuild.tools.filetools import mkdir, read_file, remove_file, write_file
-from easybuild.tools.module_generator import ModuleGeneratorLua, ModuleGeneratorTcl, dependencies_for
+from easybuild.tools.module_generator import ModuleGeneratorLua, ModuleGeneratorTcl, dependencies_for, wrap_shell_vars
 from easybuild.tools.module_naming_scheme.utilities import is_valid_module_name
 from easybuild.framework.easyblock import EasyBlock
 from easybuild.framework.easyconfig.easyconfig import EasyConfig, ActiveMNS
@@ -982,6 +982,33 @@ def test_use(self):
             ])
             self.assertEqual(self.modgen.use(["/some/path"], prefix=quote_str("/foo"), guarded=True), expected)
 
+    def test_wrap_shell_vars(self):
+        """Test function wrap_shell_vars."""
+        reference = (
+            ('abcd $VAR1 efgh $VAR2 ijkl', 'abcd PREFIX-VAR1-SUFFIX efgh PREFIX-VAR2-SUFFIX ijkl'),
+            ('abcd ${VAR1} efgh ${VAR2} ijkl', 'abcd PREFIX-VAR1-SUFFIX efgh PREFIX-VAR2-SUFFIX ijkl'),
+            ('abcd$VAR1efgh$VAR2ijkl', 'abcdPREFIX-VAR1efgh-SUFFIXPREFIX-VAR2ijkl-SUFFIX'),
+            ('abcd${VAR1}efgh${VAR2}ijkl', 'abcdPREFIX-VAR1-SUFFIXefghPREFIX-VAR2-SUFFIXijkl'),
+            ('abcd/$VAR1/efgh/$VAR2/ijkl', 'abcd/PREFIX-VAR1-SUFFIX/efgh/PREFIX-VAR2-SUFFIX/ijkl'),
+            ('abcd/${VAR1}/efgh/${VAR2}/ijkl', 'abcd/PREFIX-VAR1-SUFFIX/efgh/PREFIX-VAR2-SUFFIX/ijkl'),
+            ('abcd/$var1/efgh/$var2/ijkl', 'abcd/PREFIX-var1-SUFFIX/efgh/PREFIX-var2-SUFFIX/ijkl'),
+            ('abcd/${var1}/efgh/${var2}/ijkl', 'abcd/PREFIX-var1-SUFFIX/efgh/PREFIX-var2-SUFFIX/ijkl'),
+            ('abcd/"$VAR1"/efgh/"$VAR2"/ijkl', 'abcd/PREFIX-VAR1-SUFFIX/efgh/PREFIX-VAR2-SUFFIX/ijkl'),  # unquoted
+            ('abcd/"${VAR1}"/efgh/"${VAR2}"/ijkl', 'abcd/PREFIX-VAR1-SUFFIX/efgh/PREFIX-VAR2-SUFFIX/ijkl'),  # unquoted
+            ("abcd/'$VAR1'/efgh/'$VAR2'/ijkl", 'abcd/PREFIX-VAR1-SUFFIX/efgh/PREFIX-VAR2-SUFFIX/ijkl'),  # unquoted
+            ("abcd/'${VAR1}'/efgh/'${VAR2}'/ijkl", 'abcd/PREFIX-VAR1-SUFFIX/efgh/PREFIX-VAR2-SUFFIX/ijkl'),  # unquoted
+            ('abcd/$$VAR1/efgh/$$VAR2/ijkl', 'abcd/$VAR1/efgh/$VAR2/ijkl'),  # unescaped
+            ('abcd/$${VAR1}/efgh/$${VAR2}/ijkl', 'abcd/${VAR1}/efgh/${VAR2}/ijkl'),  # unescaped
+            ('abcd/$1VAR/efgh/$2VAR/ijkl', 'abcd/$1VAR/efgh/$2VAR/ijkl'),  # unchanged
+            ('abcd/${1VAR}/efgh/${2VAR}/ijkl', 'abcd/${1VAR}/efgh/${2VAR}/ijkl'),  # unchanged
+            ('abcd/$ VAR/efgh/$-VAR/ijkl', 'abcd/$ VAR/efgh/$-VAR/ijkl'),  # unchanged
+            ('abcd/${ VAR}/efgh/${-VAR}/ijkl', 'abcd/${ VAR}/efgh/${-VAR}/ijkl'),  # unchanged
+            ('abcd/$ {VAR}/efgh/${!VAR}/ijkl', 'abcd/$ {VAR}/efgh/${!VAR}/ijkl'),  # unchanged
+
+        )
+        for strng, expected in reference:
+            self.assertEqual(wrap_shell_vars(strng, 'PREFIX-', '-SUFFIX'), expected)
+
     def test_env(self):
         """Test setting of environment variables."""
         collection = (
@@ -1000,6 +1027,8 @@ def test_env(self):
             ("/absolute/path",     True,    'setenv\tkey\t\t"/absolute/path"\n',              'setenv("key", pathJoin("/", "absolute", "path"))\n'),  # noqa
             ("/",                  False,   'setenv\tkey\t\t"/"\n',                           'setenv("key", "/")\n'),  # noqa
             ("/",                  True,    'setenv\tkey\t\t"/"\n',                           'setenv("key", "/")\n'),  # noqa
+            ("$$VAR",              False,   'setenv\tkey\t\t"$VAR"\n',                        'setenv("key", "$VAR")\n'),  # noqa
+            ("$$VAR",              True,    'setenv\tkey\t\t"$root/$VAR"\n',                  'setenv("key", pathJoin(root, "$VAR"))\n'),  # noqa
             ("$VAR",               False,   'setenv\tkey\t\t"$::env(VAR)"\n',                 'setenv("key", os.getenv("VAR"))\n'),  # noqa
             ("$VAR",               True,    'setenv\tkey\t\t"$root/$::env(VAR)"\n',           'setenv("key", pathJoin(root, os.getenv("VAR")))\n'),  # noqa
             ("$VAR/in/path",       False,   'setenv\tkey\t\t"$::env(VAR)/in/path"\n',         'setenv("key", os.getenv("VAR") .. "/in/path")\n'),  # noqa
@@ -1014,6 +1043,20 @@ def test_env(self):
             ("/abspath/with/$VAR", True,    'setenv\tkey\t\t"/abspath/with/$::env(VAR)"\n',   'setenv("key", pathJoin("/", "abspath", "with", os.getenv("VAR")))\n'),  # noqa
             ("/abspath/$VAR/dir",  False,   'setenv\tkey\t\t"/abspath/$::env(VAR)/dir"\n',    'setenv("key", "/abspath/" .. os.getenv("VAR") .. "/dir")\n'),  # noqa
             ("/abspath/$VAR/dir",  True,    'setenv\tkey\t\t"/abspath/$::env(VAR)/dir"\n',    'setenv("key", pathJoin("/", "abspath", os.getenv("VAR"), "dir"))\n'),  # noqa
+            ("${VAR}",               False,   'setenv\tkey\t\t"$::env(VAR)"\n',                 'setenv("key", os.getenv("VAR"))\n'),  # noqa
+            ("${VAR}",               True,    'setenv\tkey\t\t"$root/$::env(VAR)"\n',           'setenv("key", pathJoin(root, os.getenv("VAR")))\n'),  # noqa
+            ("${VAR}/in/path",       False,   'setenv\tkey\t\t"$::env(VAR)/in/path"\n',         'setenv("key", os.getenv("VAR") .. "/in/path")\n'),  # noqa
+            ("${VAR}/in/path",       True,    'setenv\tkey\t\t"$root/$::env(VAR)/in/path"\n',   'setenv("key", pathJoin(root, os.getenv("VAR"), "in", "path"))\n'),  # noqa
+            ("path/with/${VAR}",     False,   'setenv\tkey\t\t"path/with/$::env(VAR)"\n',       'setenv("key", "path/with/" .. os.getenv("VAR"))\n'),  # noqa
+            ("path/with/${VAR}",     True,    'setenv\tkey\t\t"$root/path/with/$::env(VAR)"\n', 'setenv("key", pathJoin(root, "path", "with", os.getenv("VAR")))\n'),  # noqa
+            ("path/${VAR}/dir",      False,   'setenv\tkey\t\t"path/$::env(VAR)/dir"\n',        'setenv("key", "path/" .. os.getenv("VAR") .. "/dir")\n'),  # noqa
+            ("path/${VAR}/dir",      True,    'setenv\tkey\t\t"$root/path/$::env(VAR)/dir"\n',  'setenv("key", pathJoin(root, "path", os.getenv("VAR"), "dir"))\n'),  # noqa
+            ("/${VAR}/in/abspath",   False,   'setenv\tkey\t\t"/$::env(VAR)/in/abspath"\n',     'setenv("key", "/" .. os.getenv("VAR") .. "/in/abspath")\n'),  # noqa
+            ("/${VAR}/in/abspath",   True,    'setenv\tkey\t\t"/$::env(VAR)/in/abspath"\n',     'setenv("key", pathJoin("/", os.getenv("VAR"), "in", "abspath"))\n'),  # noqa
+            ("/abspath/with/${VAR}", False,   'setenv\tkey\t\t"/abspath/with/$::env(VAR)"\n',   'setenv("key", "/abspath/with/" .. os.getenv("VAR"))\n'),  # noqa
+            ("/abspath/with/${VAR}", True,    'setenv\tkey\t\t"/abspath/with/$::env(VAR)"\n',   'setenv("key", pathJoin("/", "abspath", "with", os.getenv("VAR")))\n'),  # noqa
+            ("/abspath/${VAR}/dir",  False,   'setenv\tkey\t\t"/abspath/$::env(VAR)/dir"\n',    'setenv("key", "/abspath/" .. os.getenv("VAR") .. "/dir")\n'),  # noqa
+            ("/abspath/${VAR}/dir",  True,    'setenv\tkey\t\t"/abspath/$::env(VAR)/dir"\n',    'setenv("key", pathJoin("/", "abspath", os.getenv("VAR"), "dir"))\n'),  # noqa
             # modextravars defined with dicts
             ({'value': 'value'},    False,  'setenv\tkey\t\t"value"\n',                       'setenv("key", "value")\n'),  # noqa
             ({'value': 'value',
@@ -1036,6 +1079,22 @@ def test_env(self):
               'resolve_env_vars': False}, False,  'setenv\tkey\t\t"path/$VAR/dir"\n',               'setenv("key", "path/$VAR/dir")\n'),  # noqa
             ({'value': "path/$VAR/dir",
               'resolve_env_vars': False}, True,   'setenv\tkey\t\t"$root/path/$VAR/dir"\n',         'setenv("key", pathJoin(root, "path", "$VAR", "dir"))\n'),  # noqa
+            ({'value': "${VAR}",
+              'resolve_env_vars': True},  False,  'setenv\tkey\t\t"$::env(VAR)"\n',                 'setenv("key", os.getenv("VAR"))\n'),  # noqa
+            ({'value': "${VAR}",
+              'resolve_env_vars': True},  True,   'setenv\tkey\t\t"$root/$::env(VAR)"\n',           'setenv("key", pathJoin(root, os.getenv("VAR")))\n'),  # noqa
+            ({'value': "${VAR}",
+              'resolve_env_vars': False}, False,  'setenv\tkey\t\t"${VAR}"\n',                        'setenv("key", "${VAR}")\n'),  # noqa
+            ({'value': "${VAR}",
+              'resolve_env_vars': False}, True,   'setenv\tkey\t\t"$root/${VAR}"\n',                  'setenv("key", pathJoin(root, "${VAR}"))\n'),  # noqa
+            ({'value': "path/${VAR}/dir",
+              'resolve_env_vars': True},  False,  'setenv\tkey\t\t"path/$::env(VAR)/dir"\n',        'setenv("key", "path/" .. os.getenv("VAR") .. "/dir")\n'),  # noqa
+            ({'value': "path/${VAR}/dir",
+              'resolve_env_vars': True},  True,   'setenv\tkey\t\t"$root/path/$::env(VAR)/dir"\n',  'setenv("key", pathJoin(root, "path", os.getenv("VAR"), "dir"))\n'),  # noqa
+            ({'value': "path/${VAR}/dir",
+              'resolve_env_vars': False}, False,  'setenv\tkey\t\t"path/${VAR}/dir"\n',               'setenv("key", "path/${VAR}/dir")\n'),  # noqa
+            ({'value': "path/${VAR}/dir",
+              'resolve_env_vars': False}, True,   'setenv\tkey\t\t"$root/path/${VAR}/dir"\n',         'setenv("key", pathJoin(root, "path", "${VAR}", "dir"))\n'),  # noqa
         )
         # test set_environment
         for test_value, test_relpath, ref_tcl, ref_lua in collection: