You can name the environment variable whatever you want. The trick is that the variable's value needs to be either none, ssl or tls (i.e. the three options that are supported for the "Encryption Method" setting), for it to be selectable for that setting.
For example, if you add a variable called SMTP_ENCRYPTION_METHOD to your .env file, and set its value to ssl (i.e. SMTP_ENCRYPTION_METHOD=ssl), that variable will show up as a selectable option for the "Encryption Method" setting:

Note that the "Use authentication" setting has the same behaviour; any and all environment variables with a value set to one of these settings' supported options (yes, no, true, false, on, off, 0 or 1, for the "Use authentication" setting) will be selectable, regardless of the actual variable name.
Edit: Environment variable support for the Encryption Method setting was only added in Craft 3.7.22, so make sure you're on at least that version.