[inferiorhuman]

  Trace amounts can possibly sweat out in specific conditions

Nah, it's pretty well documented heat and humidity will release formaldehyde. In paperwork filed with the EPA arguing against new limits, an insulation manufacturer trade group cited California's (OEHHA) exposure limits on formaldehyde as reasonable.

Those limits are:

  recently manufactured products contribute no more than 9 µg/m3 of
  formaldehyde into the indoor air

So the Prop 65 warning certainly seems reasonable from here.

https://downloads.regulations.gov/EPA-HQ-OPPT-2023-0613-0230...

[defrost]

Vapor barriers limit human exposure, it has to travel into the occupied spaces to be an issue, then linger.

It also has to be the type of wool that has been treated, etc.