If you’re getting an Internal Server Error after making that change, it probably means your Apache server just doesn’t have the SetEnv directive available. That’s pretty rare, but it would probably mean that the mod_env module isn’t loaded for Apache. If you control this server you could look into enabling mod_env.
Otherwise, there’s another way around doing this that doesn’t use the .htaccess: you can restore the .htaccess to its previous state, and instead edit the bootstrap.php file. Immediately underneath the define('OMEKA_VERSION' line, add a new line:
define('APPLICATION_ENV', 'development');