Here's a way to trigger this error that's unrelated to the PATH environment variable:

    >>> subprocess.call('python', executable=r'C:\Program Files\Python36\.\python.exe')
    Fatal Python error: Py_Initialize: unable to load the file system codec
    ModuleNotFoundError: No module named 'encodings'
    [...]

Apparently Windows doesn't normalize the process image path if it uses only backslash as the path separator. It normalizes it if at least one backslash is replaced with a slash.