May have just found one solution to my source of the problem - it might not work for everyone, but it worked for me.
I too was getting the fabled error…
UnrealBuildTool Exception: ERROR: Failed to read environment variables from XML file: C:\Users\Alex.Stevens\AppData\Local\Temp mpED32.tmp
So I ran tmpED32.tmp.bat in terminal, and noticed the extra quotation mark (shown in red, second last line - glad I was wearing my glasses).
C:\Users\Alex.Stevens>call "D:\Program Files (x86)\Microsoft Visual Studio 12.0\
\Skype\Phone\ was unexpected at this time.
C:\Users\Alex.Stevens> @set "PATH=C:\Program Files (x86)\Microsoft SDKs\Windows
\v8.1A\bin\NETFX 4.5.1 Tools\x64\;C:\cygwin64\bin;C:\Python27\Scripts;C:\Python2
7\;C:\Program Files (x86)\NVIDIA Corporation\PhysX\Common;C:\ProgramData\Oracle\
Java\javapath;C:\Program Files (x86)\Intel\iCLS Client\;C:\Program Files\Intel\i
ystem32\WindowsPowerShell\v1.0\;C:\Program Files\Intel\Intel(R) Management Engin
e Components\DAL;C:\Program Files\Intel\Intel(R) Management Engine Components\IP
T;C:\Program Files (x86)\Intel\Intel(R) Management Engine Components\DAL;C:\Prog
ram Files (x86)\Intel\Intel(R) Management Engine Components\IPT;C:\Program Files
(x86)\QuickTime\QTSystem\;C:\Program Files\Common Files\Autodesk Shared\;C:\Pro
gram Files\Microsoft SQL Server\110\Tools\Binn\;C:\Program Files (x86)\Windows K
its\8.1\Windows Performance Toolkit\;C:\Program Files (x86)\Microsoft SDKs\TypeS
cript\1.0";C:\Program Files (x86)\Skype\Phone\;D:\Program Files (x86)\Perforce"
For some reason, this added quotation mark has been added to the Global “PATH” environment variable. This was on my work laptop, so it might be a stuff-up from the Active Directory/IEM scripts distributing Skype, but it could be from the Microsoft SDKs… not 100% sure (without confirmation).
It might not be the same exact location for you, so look for a single quotation mark in your PATH System Variable and remove it - ** here be dragons, keep a copy of the whole PATH environment variable, just in case you break your windows.**