Shell Script – Replace Environment Variables in a File with Actual Values

I think you're confused about terminology.

An "environment variable" is merely a shell variable that any child processes will inherit.

What you're doing in your example is creating a shell variable. It's not in the environment until you export it:

MY_HOME="/home/my_user"
export MY_HOME

puts a variable named "MY_HOME" in almost all shells (csh, tcsh excepted).

In this particular case, the double-quotes are superfluous. They have no effect. Double-quotes group substrings, but allows whatever shell you use to do variable substitution. Single-quoting groups substrings and prevents substitution. Since your example assignment does not have any variables in it, the double-quotes could have appeared as single-quotes.

V='some substrings grouped together'  # assignment
X="Put $V to make a longer string"    # substitution and then assignment
Y=`date`                              # run command, assign its output
Z='Put $V to make a longer string'    # no substition, simple assignment

Nothing is in the environment until you export it.

export $key=$val should work just fine in bash. I suspect your issue is the pipe (|). All commands in a pipeline are executed in a subshell. In your example, the instance of bash that is running your script will fork off 2 subshells: one for cat $1 and another for the while read .... The variables are assigned and exported in the subshell running the while loop, and then all of them are promptly thrown out when the subshell exits. One way to fix this is to not spawn subshells at all. Instead of a useless use of cat, try redirection instead:

while read ...; do
   ...
done < "$1"

BashFAQ 24 explains this in much greater detail.

An alternate approach is to just source the file, with exports thrown in:

. <(sed '/^export/!s/^/export /' "$1")

^{The <( ) is process substitution.}

As an additional note of caution, since you are reading environment variables from an argument, you must make sure that the argument file $1 is a trusted source so it can't do bad things to your script.