Wool, like straw, is a by product of an existing industry and much would otherwise be wasted. Wool used in construction comes in two forms: Loose wool. This is usually sourced from a sheepskin tannery. Following the tanning process, the wool is very clean and has no lanolin left in it.
Wool insulation can also be bought in the form of pre-formed 'batts'. These are similar to the way that we buy fibreglass or rockwool, and make installation easier, but there is more processing involved and a polyester binder is used.